Gold Price Resurgence Continues, Fueled By Safe Haven Demand

Summary:
• Gold price stayed on the upside on Monday, as Israel-Hezbollah war took a new turn to add to the pressure exerted by imminent Fed rate cuts.

Gold price rose on Monday with Fed rate cuts and geopolitical tension in the Middle East providing fuel.  Spot gold price was at $2,394 per ounce in the intraday session, up by 0.3 percent.  With the US dollar waning further following Friday’s release of Personal Consumption Expenditure (PCE) Index figures, the yellow metal’s safe haven appeal has received a boost.

The greenback moved sideways against major currencies for the most part last week, with the DXY Index ultimately closing the week down by 0.04 percent. Also, yields on US treasuries have declined significantly on the last week, with returns on benchmark 10-year bonds standing at 4.158 at the time of writing.

Lebanon’s Hezbollah group attacked Israel’s Golan Heights over the weekend, killing 12 young people to record the deadliest day from external attacks on Israel since the war begun on October 7, 2023. Israel has vowed retaliation, with the country’s cabinet authorizing PM Benjamin Netanyahu to proceed with the necessary actions. This has triggered a spike in tension in the Middle East, with many seeing it as a potential precursor to an escalation of the war. That will likely draw more investors towards safe haven gold in the near term.

Meanwhile, the Federal Open Market Committee (FOMC) members will meet on Wednesday on the heels of PCE data that showed US inflation rate slowing down. While no rate cut is expected until September, comments from FOMC members will provide cues on the potential extent and number of cuts for the remaining part of the year.

Gold price momentum indicators

On the 2-hour chart, the momentum on gold price signals control by the bulls. The price has recently crossed above the Volume Weighted Moving Average (VWMA), supporting the upside view. Also, the Relative Strength Index (RSI) is 55, adding support for control by the buyers.

Support and resistance levels

The momentum on gold price favours control by the buyers above $2,394. The upward momentum will likely meet the first resistance at $2,398, beyond which the next barrier could come at $2,402. Alternatively, a move below $2,394 will signal control by the sellers. That will likely find the first support at $2,390, but extended control by the sellers will break the support and invalidate the upside narrative. Also, it could strengthen the downside momentum to take XAU/USD to test $2,386.