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Gold price sticks to modest gains amid geopolitical risks, lacks follow-through

Gold price sticks to modest gains amid geopolitical risks, lacks follow-through

By Haresh Menghani

  • Gold price regains positive traction in reaction to Iran’s attack on Israel over the weekend.
  • The upside remains capped amid hawkish Federal Reserve expectations and a bullish USD.
  • The US Retail Sales and Empire State Manufacturing Index are eyed for short-term impetus.

Gold price (XAU/USD) attracts some dip-buying on the first day of a new week and stalls its retracement slide from a fresh all-time peak, around the $2,431-2,432 area touched on Friday. Iran’s attack on Israel over the weekend raised the risk of a further escalation of conflicts in the Middle East, which, in turn, benefits the traditional safe-haven precious metal. Apart from this, subdued US Dollar (USD) price action is seen as another factor lending some support to the commodity. 

Meanwhile, investors have been pushing back expectations for the first rate hike by the Federal Reserve (Fed) to September from June in the wake of still-sticky inflation. This remains supportive of elevated US Treasury bond yields, which allows the US Dollar (USD) to stand tall near the YTD peak touched on Friday and acts as a headwind for the non-yielding Gold price. Traders now look to the US macro data and Fedspeak for short-term impetus later during the North American session. 

Daily Digest Market Movers: Gold price attracts some haven flows amid Iran-Israel conflict; bullish USD act as a headwind

  • Iran’s unprecedented direct attack on Israeli territory raised the threat of a wider regional conflict in the Middle East, which, in turn, assists the safe-haven Gold price to regain some positive traction on Monday. 
  • Israeli officials are in favor of retaliation, though the US clarified that it will not take part in any offensive action against Iran, limiting any immediate market reaction and capping further gains for the XAU/USD.
  • Investors pushed back their expectations for the first interest rate cut by the Federal Reserve to September from June following the release of hotter-than-expected US consumer inflation figures last week. 
  • Moreover, traders are now pricing in the possibility of less than two rate cuts in 2024 as compared to the three projected by the Fed, allowing the US Dollar to stand tall near its highest level since early November. 
  • The Fed’s hawkish outlook, along with the bullish USD, might hold back bulls from placing aggressive bets around the precious metal ahead of the US data – Retail Sales and the Empire State Manufacturing Index. 

Technical Analysis: Gold price sticks to modest gains, $2,334-2,332 horizontal  support holds the key for bullish traders

From a technical perspective, the Relative Strength Index (RSI) on the daily chart – despite easing from higher levels – is still holding in the overbought territory. Hence, any subsequent move beyond the Asian session peak, around the $2,371-2,372 area, is more likely to confront stiff resistance and remain capped near the $2,400 mark. The subsequent move up, however, has the potential to lift the Gold price back towards the record peak, around the $2,431-2,432 region touched last Friday.

On the flip side, the $2,334-2,332 horizontal zone is likely to protect the immediate downside, below which the Gold price could extend the corrective fall towards the $2,300 round figure. Some follow-through selling will suggest that the precious metal has topped out in the near term and set the stage for some meaningful depreciating move towards the $2,220 zone with some intermediate support near the $2,250 region.

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