Volatility in the gold market has significantly eased following reduced concerns of a broader conflict between Israel and Iran. This development has tempered the safe-haven appeal of gold, allowing riskier assets like the S&P 500 and high-beta currencies such as the Australian dollar and British pound to recover previous losses amidst improved risk sentiment.
Looking ahead to the upcoming week, attention shifts to the US Treasury’s forthcoming updates on funding requirements, which will shed light on the potential issuance of bonds favoring shorter or longer durations. This decision is expected to impact both shorter and longer-dated yields, potentially influencing the trajectory of gold prices.
Gold Nudges Higher Despite Lack of Major Bullish Drivers
Despite a lack of significant bullish drivers, the price of gold has edged higher, reacting to concerns over the Federal Reserve’s stance on interest rates following worrisome inflation data released on Friday. The latest Personal Consumption Expenditures (PCE) report showed both headline and core inflation surpassing expectations, drawing attention to short-term inflationary trends that are on the rise.
Federal Reserve Chair Jerome Powell acknowledged the upward trend in inflation but emphasized the Fed‘s readiness to respond accordingly to any developments. Vice Chairman John Williams even hinted at the possibility of another interest rate hike if necessary. These signals have prompted a reassessment in the market, retracting earlier expectations of aggressive rate cuts in 2024 and extending the dollar’s strength over the longer term.
While geopolitical tensions previously shielded gold from the impact of a stronger dollar and rising yields, the recent de-escalation has left gold susceptible to a loss of momentum in the absence of fresh catalysts. Gold recently rebounded from support around the $2320 level, a key swing low. Sustained prices above this level could indicate a constructive bullish trend continuation, though without new catalysts, upside potential may be limited in the near term.
