Gold prices stood firm on Monday, recording a gain of over 0.70%, fueled by mounting tensions in the Middle East and the US Dollar (USD) pairing its earlier gains during the day. As the Asian session commenced, XAU/USD traded at $2031.60, experiencing a minor dip of 0.07% after bouncing back from a weekly low of $2017.92.
The resilience of XAU/USD is anticipated to persist, primarily driven by geopolitical risks associated with the escalating conflict in the Middle East. Market participants are exercising caution in the lead-up to Wednesday’s US Federal Reserve (Fed) monetary policy decision. Despite the Greenback strengthening during the day, it finished the session virtually unchanged at 103.47, accompanied by a drop in US Treasury bond yields. This decline in yields contributed to the advancement of Gold.
The recent drone attack in Jordan targeting US citizens, resulting in casualties, prompted a strong response from US Defense Secretary Lloyd Austin. He asserted, “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.” The geopolitical tensions arising from such incidents continue to underpin the appeal of Gold.
Moreover, the US 10-year Treasury bond yield slipped by six basis points to 4.07%, enhancing the allure of Gold as a non-yielding asset. The Federal Reserve’s January meeting is anticipated to maintain interest rates without significant changes, adopting a more neutral stance compared to the dovish pivot witnessed in December by Jerome Powell and Co.
According to the CME FedWatch Tool, market participants are not expecting a rate cut until the May meeting, with 100% odds for a 25 basis points reduction and a 0.50% cut. However, these expectations could undergo revisions following the conclusion of the Federal Reserve’s decision.
In a landscape marked by geopolitical uncertainties and evolving monetary policies, Gold remains a focal point for investors seeking stability and a hedge against potential risks.
