On Monday, the price of gold remained resilient, exhibiting a gain of more than 0.70%, supported by escalating tensions in the Middle East and the US Dollar (USD) retracing its earlier gains. During the Asian session, XAU/USD traded at $2031.60, experiencing a minor dip of 0.07% after rebounding from a weekly low of $2017.92.
The geopolitical landscape, particularly the increasing tensions in the Middle East, continues to drive market sentiment. Investors are treading cautiously in anticipation of the US Federal Reserve’s (Fed) monetary policy decision scheduled for Wednesday. Despite the USD making initial gains during the day, finishing virtually unchanged at 103.47, Gold advanced as US Treasury bond yields dropped.
The recent drone attack in Jordan, targeting US citizens and resulting in casualties, prompted a stern response from US Defense Secretary Lloyd Austin. He stated, “The President and I will not tolerate attacks on U.S. forces, and we will take all necessary actions to defend the U.S. and our troops.” This geopolitical development contributed to the upward trajectory of gold.
Furthermore, the US 10-year Treasury bond yield experienced a decline of six basis points, reaching 4.07%. This decrease in yields enhanced the attractiveness of gold, a non-yielding asset. The upcoming Federal Reserve meeting in January is expected to maintain interest rates without significant changes, adopting a more neutral stance compared to the dovish pivot seen in December.
Market expectations, as indicated by the CME FedWatch Tool, suggest that a rate cut may not occur until the May meeting, with 100% odds for a 25 basis points reduction and a 0.50% cut. However, these expectations could be subject to change based on the outcomes of the Federal Reserve’s decision.
As uncertainties in the geopolitical landscape persist and the market awaits the Fed’s decision, gold is poised to remain a focal point for investors navigating through global uncertainties and shifting monetary policies.
