Gold price consolidates in a range, bullish potential intact amid rising geopolitical risks

• The price of gold lacks a firm intraday direction on Monday amid a combination of divergent forces.
• A positive risk tone limits gains, although geopolitical risks and Fed rate cut bets provide support.
• Traders also appear reluctant ahead of key US inflation figures due this week.

The price of gold (XAU/USD) is struggling to capitalize on its gains of the past two days and is oscillating in a narrow trading band during the Asian session on Monday. A generally positive tone around equity markets is seen as a headwind for the precious metal, although a combination of factors should help limit any significant downside. The risk of further escalation of geopolitical tensions in the Middle East should keep any optimism in the markets in check. Additionally, dovish expectations of the Federal Reserve (Fed) are keeping US dollar (USD) bulls on the defensive and should provide support to the non-yielding yellow metal.

Traders also appear reluctant and may prefer to wait on the sidelines ahead of this week’s release of the latest US inflation figures before placing aggressive directional bets around the gold price. The US Producer Price Index (PPI) will be released on Tuesday, followed by the US Consumer Price Index (CPI) on Wednesday. Apart from this, Thursday’s US retail sales data will influence expectations of the Fed’s policy path, which in turn will boost USD demand and provide a significant boost to XAU/USD. Apart from this, geopolitical developments will help determine the short-term trajectory of the commodity.

Daily Digest Market Movers: Gold price supported by Middle East tensions, dovish Fed expectations

• The Israel Defense Forces (IDF) intercepted approximately 30 projectiles that were identified as crossing from Lebanon into northern Israel early Monday morning.
• The Israeli Air Force and Directorate of Military Intelligence were placed on high alert following sightings in western Iran suggesting an imminent attack.
• Hamas leaders are asking the mediators of the cease-fire negotiations with Israel to present a plan based on previous talks, rather than engaging in new ones.
• The US is bolstering its capabilities in the Middle East by sending an additional guided missile submarine to the region in light of rising regional tensions.
• The developments raise the risk of a wider conflict in the region and provide some support to safe-haven gold prices amid subdued Federal Reserve expectations.
• Market participants have fully priced in a move to cut the Fed’s interest rate by 25 basis points at the September policy meeting and see an equal chance of a further 50 basis point rate cut.
• This is failing to help the US dollar attract any significant buying and is proving to be another factor acting as a tailwind for the non-yielding yellow metal.
• However, commodities lack an optimistic conviction as investors await the release of the latest US inflation figures this week before placing directional bets.
• US Producer Price Index (PPI) and US Consumer Price Index (CPI) are due on Tuesday and Wednesday respectively, followed by US Retail Sales on Thursday.
• This could determine the Fed’s future policy decisions, which, along with geopolitical developments, should provide further directional impetus to XAU/USD.

Technical Outlook: Gold Price Bulls Have Top; could aim to challenge the all-time high near the $2,483-2,484 area

From a technical perspective, the recent retracement of support at the 50-day simple moving average (SMA) favors bullish traders. Additionally, the oscillators on the daily chart remain in positive territory. That being said, the lack of a follow-through requires some caution before positioning for anything significant movement of appreciation. Meanwhile, any further move up is more likely to face some resistance near the $2,448-$2,450 region. Some further buying should pave the way for a move towards challenging the all-time high near the $2,483-$2,484 area reached in July. It is followed by the psychological mark of $2,500, which, if decisively broken, will set the stage for another short-term appreciation move.

On the other hand, the horizontal resistance threshold of $2,412-2,410 now appears to protect the immediate downside ahead of the $2,400 round-digit mark. Any further decline could continue to attract buyers and remain cushioned near the 50-day SMA support, currently pinned near the $2,373-$2,372 region. The latter should act as a key pivotal point, below which the gold price could drop to the late July lows around the $2,353-$2,352 area, which now coincides with the 100-day SMA support. A convincing break below will shift the short-term bias in favor of bear traders and induce aggressive technical selling.