Geopolitical tensions and gold market have recently fallen below $2,400, continuing their downward trend for the second day. This decline is largely due to rising US Treasury yields and shifting market sentiment. Although geopolitical tensions in the Middle East have somewhat mitigated the losses, the XAU/USD is trading at $2,389, reflecting a 0.82% decrease.
Market Recovery Amidst Geopolitical Tensions
On Tuesday, the financial markets showed signs of recovery. The Nikkei index rebounded, closing 10% higher after a previous 12% drop. Similarly, European and US equity indices recorded substantial gains.
However, the strength of the US Dollar remains a challenge for gold prices. The US Dollar Index (DXY), which tracks the dollar’s performance against six major currencies, rose by 0.30% to 102.97.
Influence of Elevated US Yields on Gold Prices
The drop in gold prices is partly due to rising US yields. The 10-year US Treasury yield increased by ten basis points (bps) to 3.892%. Traders are anticipating a 50-bps rate cut by the Federal Reserve in their September meeting, though this has not yet occurred.
Geopolitical Tensions Impacting the Gold Market
Recent geopolitical events, such as Hezbollah’s attacks on northern Israel, are creating uncertainty. If these tensions escalate, gold prices could rise as investors seek a safe haven, potentially pushing prices back above $2,400.
Federal Reserve’s Position and Its Effect on Gold
Federal Reserve officials, including San Francisco Fed’s Mary Daly, have noted that the risks to the dual mandate are now balanced. They remain open to reducing borrowing costs in future meetings.
Daily Market Digest: Gold Market and Sentiment Analysis
Concerns about a US recession have diminished, as shown by improved market sentiment. Traders still expect the Federal Reserve to cut interest rates by 50 basis points in September. The ISM Services PMI report indicated that the economy continues to grow, offering relief after poor ISM Manufacturing PMI and US jobs reports.
The Federal Reserve decided to keep rates unchanged last week but hinted that positive inflation data and a weakening labor market might prompt future rate cuts. The CME FedWatch tool now shows a reduced probability for a 50-bps rate cut in September, down from 85% to 69.5%.
Technical Analysis: Gold Prices Under Pressure
Gold’s decline below $2,400 could lead to further drops if key support levels are breached. Prices might approach the May 3 low of $2,277. The Relative Strength Index (RSI) signals strong bearish momentum.
If XAU/USD falls below the 50-day Simple Moving Average (SMA) at $2,366, it could drop further to the 100-day SMA at $2,342, followed by a support trendline around $2,316. A breach of these levels may see the next support at $2,300.
Conversely, if gold prices recover and surpass $2,400, the next resistance level would be the psychological $2,450 mark. A breach above this could lead to testing the August 2 peak at $2,477 and potentially reaching the all-time high of $2,483, with a target of $2,500.
Conclusion
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