Gold Price Steadies Above $2450 Poised for Modest Weekly Gains
Gold prices have been relatively steady above the $2450 mark, maintaining a sideways trajectory as various factors influence the market. The lack of a clear intraday direction in gold prices suggests that a combination of opposing forces is influencing the metal, each pulling the market in different directions. On one hand, the easing of recession fears in the United States has bolstered investor confidence, dampening the demand for gold as a safe-haven asset. On the other hand, ongoing geopolitical tensions and expectations of an imminent shift in the Federal Reserve’s monetary policy are providing some support for gold prices.
Despite the positive move in gold prices on Thursday, where the metal managed to gain some ground, Friday saw gold prices oscillating between minor gains and losses as the European session approached. The recent release of upbeat U.S. macroeconomic data played a significant role in this mixed performance. The data indicated that the U.S. economy is not heading towards a sharp downturn, as many had feared, leading to a boost in investor confidence. This development has reduced the appeal of gold as a safe-haven asset, as investors now feel more confident about the stability of the economy.
However, the situation is far from straightforward. Geopolitical tensions, particularly in the Middle East, continue to simmer, adding a layer of uncertainty to the market. The ongoing conflict in the region, coupled with concerns over how Iran might respond to the assassination of Hamas leader Ismail Haniyeh in Tehran last month, has kept the demand for safe-haven assets like gold alive. Additionally, the long-running Russia-Ukraine war remains a significant source of geopolitical risk, contributing to the support for gold prices.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
In the backdrop of these geopolitical concerns, there is also growing speculation that the Federal Reserve might soon begin a policy-easing cycle. Markets have already priced in a 25 basis points (bps) rate cut at the upcoming Federal Open Market Committee (FOMC) meeting in September. This expectation has triggered a decline in U.S. Treasury bond yields and attracted sellers to the U.S. Dollar, both of which are providing additional support to gold prices. A weaker dollar generally makes gold more attractive to holders of other currencies, and lower yields reduce the opportunity cost of holding non-yielding assets like gold.
As the week progresses, traders are likely to keep a close eye on upcoming U.S. macroeconomic data, including Building Starts, Housing Permits, and the Preliminary Michigan Consumer Sentiment Index. These reports could offer fresh insights into the health of the U.S. economy and provide short-term trading opportunities in the gold market. Despite the mixed signals, gold appears poised to register modest gains for the week.
The market movers on Thursday provided a clearer picture of the forces at play. Persistent geopolitical tensions, stemming from the ongoing conflicts in the Middle East and the protracted Russia-Ukraine war, helped gold prices regain some positive traction. The concerns over Iran’s potential response to the assassination of a key Hamas leader, coupled with Russia’s plans to beef up border defenses in response to Ukraine’s attacks, have kept the geopolitical risk premium in gold prices intact.
On the economic front, the U.S. data released on Thursday further complicated the outlook for gold. Retail sales in the U.S. rose more than expected in July, reflecting a still-resilient labor market and easing fears of a sharp economic slowdown. The U.S. Census Bureau reported a 1% increase in retail sales for July, while sales excluding autos grew by 0.4%, both figures exceeding market expectations. Additionally, the U.S. Department of Labor revealed that initial jobless claims for the week ending August 10 were lower than anticipated, further easing concerns about the health of the labor market.
These positive economic indicators have led markets to price in a greater chance that the Federal Reserve will lower borrowing costs by just 25 basis points at its September meeting. This has, in turn, triggered a rise in U.S. Treasury bond yields and strengthened the U.S. Dollar, both of which have capped the upside for gold prices. Notably, comments from Fed officials, including Atlanta Fed President Raphael Bostic and St. Louis Fed President Alberto Musalem, suggest that a rate cut might be on the horizon as inflation cools and the balance of risks shifts.
From a technical analysis perspective, gold’s inability to break through the $2,470 resistance level suggests that traders should wait for some follow-through buying before positioning for further gains. The daily chart indicates that the oscillators are still in positive territory, which could pave the way for gold to challenge its all-time peak of around $2,483-$2,484, and potentially conquer the psychological $2,500 mark.
However, on the downside, immediate support is seen around the $2,447-2,445 zone, followed by the $2,430-2,429 area and the weekly low near $2,424. A break below these levels could expose gold prices to further weakness, potentially testing the 50-day Simple Moving Average (SMA) near $2,383, and possibly the 100-day SMA around $2,363-2,362.
As the focus shifts to the upcoming FOMC minutes and Fed Chair Jerome Powell’s appearance at the Jackson Hole Symposium, traders will closely monitor any signals that could influence the future trajectory of gold prices.
