Gold Holds Strong Above $2500 as Markets Await FOMC Minutes
Gold price (XAU/USD) continues to hold above the critical $2,500 level, maintaining its recent upward momentum as traders await further guidance from the Federal Open Market Committee (FOMC) minutes and Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium. On Tuesday, gold reached a new all-time high, driven primarily by a dovish stance from the Federal Reserve (Fed) that weakened the US Dollar (USD) and boosted demand for the precious metal.
Geopolitical tensions, particularly in the Middle East, combined with economic concerns in China, have further strengthened gold’s position as a safe-haven asset. These factors, along with the anticipation that the Fed will begin easing its monetary policy with a 25 basis points (bps) rate cut in September, have kept the pressure on US Treasury bond yields, thereby supporting gold prices.
Despite these bullish factors, a modest recovery in the USD and the possibility of a ceasefire in Gaza have prevented any significant further gains for gold. Investors are taking a cautious approach, preferring to wait for the release of the July FOMC meeting minutes, which are expected to provide more insight into the Fed’s future policy path. Additionally, Jerome Powell’s upcoming speech is likely to be closely analyzed for indications on how the US central bank plans to navigate the current economic landscape.
The overall market sentiment remains tilted in favor of gold bulls. The fundamental backdrop, including expectations of a dovish Fed and ongoing geopolitical uncertainties, continues to support the precious metal’s strong performance. However, the market remains vigilant, with traders keeping a close eye on the forthcoming economic data and central bank communications.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Market Movers and Sentiment
The anticipation of the Fed’s imminent rate-cutting cycle has been a major driver for the gold market. With a 70% probability that the Fed will lower interest rates by 25 bps in September, according to the CME Group’s FedWatch Tool, there is a prevailing expectation that the Fed will initiate a series of rate cuts at each of the remaining three meetings in 2024. This dovish outlook has led to a decline in US Treasury bond yields and a weakening of the USD, both of which have contributed to gold’s rise.
However, Fed Governor Michelle Bowman has attempted to manage these expectations by emphasizing that, despite progress, inflation remains significantly above the central bank’s 2% target. This has created a degree of uncertainty, as the Fed’s future actions may be more dependent on inflation data and economic conditions than previously anticipated.
In China, the People’s Bank of China (PBOC) recently granted new gold import quotas to several banks, signaling a potential surge in gold demand. This move is seen as a response to the country’s ongoing economic challenges and could lead to another significant buying wave in the gold market.
Additionally, the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, have increased to their highest level in seven months, reflecting improved investment demand for gold. This is further evidence of the strong interest in gold as a safe-haven asset amidst global uncertainties.
Geopolitical concerns, particularly in the Middle East, continue to play a significant role in the market’s risk sentiment. The potential for a ceasefire between Israel and Hamas has introduced some caution, but overall, the geopolitical landscape remains a supportive factor for gold prices.
Technical Analysis
From a technical standpoint, gold’s recent breakout above the triple top resistance around the $2,479-$2,480 region, followed by a move beyond the $2,500 psychological mark, has provided a fresh impetus for bullish traders. The daily chart’s oscillators remain in positive territory and are not yet signaling overbought conditions, indicating that the path of least resistance for gold is likely to continue upward.
In the event of a pullback, the $2,500 level is expected to act as a strong support, potentially limiting any downside movement. Should selling pressure increase, gold prices could find further support around the $2,455-$2,453 region, with a more significant support level near $2,430. A break below this level could bring the 50-day Simple Moving Average (SMA), currently just below $2,400, into focus as a key support level.
Overall, gold’s technical and fundamental outlook remains positive, with the market poised to react to upcoming economic data and central bank announcements. Investors and traders will closely monitor the FOMC minutes and Jerome Powell’s speech for any signs that could influence the near-term trajectory of gold prices. As the market navigates these events, gold will likely continue attracting interest as a safe-haven asset, supported by ongoing economic and geopolitical uncertainties.
