Gold surges amid Middle East turmoil

Gold (XAUUSD) started the week on a strong note, climbing above $2,443 (USD) and reaching an intraday peak of $2,434. This bullish move comes despite a robust US dollar and a generally positive risk sentiment in the market—factors that usually temper gold's momentum. However, rising geopolitical tensions and growing expectations of Federal Reserve rate cuts are fueling the yellow metal’s rally.

The ongoing conflicts in the Middle East have heightened the risk of a broader regional escalation, curbing market optimism and driving investors toward safe-haven assets like gold. Additionally, the anticipation of a dovish stance from the Fed has further supported gold prices, despite the non-yielding nature of the metal.

Looking ahead, traders are cautious as they await critical US inflation data that could set the tone for gold's near-term movement. The US Producer Price Index (PPI) is slated for release on Tuesday, followed by the Consumer Price Index (CPI) on Wednesday. Furthermore, Thursday’s US Retail Sales figures will likely influence expectations regarding the Fed’s next moves, impacting the US dollar and, by extension, XAU/USD.

USD dynamics

Even with speculation surrounding a potential Fed rate cut of 25 to 50 basis points in September, the US dollar has been gaining strength. However, these gains may be short-lived, given the anticipated dovish shift in Fed policy and a prevailing risk-on sentiment in equity markets.

Fed Governor Michelle Bowman's recent remarks, suggesting that the Fed may not be ready for a rate cut in September due to inflationary concerns and a strong labor market, haven’t significantly boosted the dollar or hindered gold’s rise. This indicates that traders are weighing other factors, like geopolitical risks, more heavily in their decisions.

Short-term outlook

Escalating tensions in the Middle East have further supported gold prices. The situation intensified early Monday when the Israel Defense Forces intercepted projectiles from Lebanon, raising fears of a larger regional conflict. With Israel on high alert and the US increasing its military presence in the region, the likelihood of further escalation remains high, adding to gold’s appeal as a safe haven.

Gold is expected to maintain its bullish trajectory, with immediate support at $2,429 and potential resistance at $2,453. However, traders should remain cautious, as upcoming US inflation data could spark significant market shifts. A drop below $2,429 might lead to increased selling pressure, but as long as gold remains above this level, the outlook stays positive.

Technical analysis

Currently trading at $2,442.07, gold shows a slight uptick of 0.02%. The 4-hour chart identifies the pivot point at $2,429.62 as a crucial level to watch. Immediate resistance is seen at $2,452.90, with further targets at $2,473.87 and $2,492.08. On the downside, support is established at $2,408.93, with additional support levels at $2,380.87 and $2,364.29.

Both the 50-day EMA at $2,414.54 and the 200-day EMA at $2,394.58 offer solid support, reinforcing the bullish sentiment as long as gold trades above these levels. A breach below the pivot point, however, could trigger a sharper decline.

Conclusion

For traders, the current market environment presents a prime opportunity to capitalize on gold's upward momentum, driven by geopolitical uncertainties and potential shifts in Fed policy. Keeping a close eye on key support and resistance levels, along with upcoming economic data, is crucial for making informed trading decisions. As always, staying disciplined and flexible in your strategy will help you navigate the market effectively and maximize potential gains.