In the early European trading session, the price of gold (XAU/USD) reversed an intraday dip to the $1,990 level and reached a new daily peak. However, it has yet to breach the psychologically significant $2,000 mark. The primary factor influencing these movements is the expectation that the Federal Reserve (Fed) will maintain the possibility of one additional interest rate hike in 2023 to bring inflation back in line with its 2% target. This relatively hawkish outlook supports higher U.S. Treasury bond yields, consequently revitalizing demand for the U.S. dollar (USD) and potentially capping the non-yielding gold’s gains.
Furthermore, the more measured approach by Israel in its Gaza operations has somewhat alleviated concerns regarding an escalating crisis in the Middle East, which has affected the safe-haven appeal of gold. However, it’s essential to note that the risk of further escalation in the Israel-Hamas conflict persists, and uncertainties surrounding the economic recovery in China still linger. These factors are contributing to some dip-buying interest in the XAU/USD pair around the $1,990 region. This resurgence of dip-buying suggests a degree of caution before committing to significant corrective declines.
With the two-day FOMC monetary policy meeting set to commence this Tuesday, traders may choose to stay on the sidelines awaiting its outcome. In the meantime, developments on the U.S. economic calendar, including the release of the Chicago PMI and the Conference Board’s Consumer Confidence Index, could impact USD price dynamics and provide impetus to gold. Given this complex backdrop, it’s advisable for traders to exercise caution, especially in light of the impending central bank event risk.
