XAU/USD in a wait-and-see mode as geopolitical risks, US CPI data loom

• The gold price consolidates the late recovery from the previous week as the US CPI week begins.
• A sense of caution prevails on pre-CPI anxiety and geopolitical risks, supporting the US dollar.
• Dovish Fed bets could cap any downside in gold, while the 21-day SMA holds and the daily RSI remains bullish.

The price of gold is trading on the back foot near $2,430 on Monday morning, consolidating the late recovery of the previous week. Traders appear non-committal and are refraining from placing new bets on gold prices as they prepare for an action-packed week with US Consumer Price Index (CPI) inflation data in focus.

Gold price braces for Iran-Israel escalation and key US data

Traders are taking note of the latest developments surrounding geopolitical tensions in the Middle East, with Israel bracing for an imminent attack by Iran in retaliation for the assassination of Hamas leader Ismail Haniyeh in Tehran in late July. On Sunday, Axios reported that the Israeli intelligence community is being put on high alert because it is believed that Iran has decided to attack Israel directly and could do so within days.

Meanwhile, ABC News reported early Monday that the Israel Defense Forces (IDF) intercepted approximately 30 “projectiles” that were identified as crossing from Lebanon into northern Israel. This comes even as Hamas proposed a plan to implement the ceasefire after a diplomatic push by the United States, Egypt and Qatar for a new round of talks to take place between Israel and Hamas on August 15, either in Doha or in Cairo.

If Iran-backed militant groups Hezbollah and Hamas reject any cease-fire attempts and attack Israel, the escalation could well translate into a wider regional conflict. Rising geopolitical tensions could keep the US dollar (USD) a safe haven, weighing negatively on the USD gold price.

However, the gold price downside could likely be cushioned by increased bets that the US Federal Reserve (Fed) will cut interest rates by 50 basis points (bps) in September. Although the odds of such a move have fallen to less than 50 percent compared with about 75 percent a week ago, CME Group’s FedWatch tool showed.

This could be attributed to Fed Governor Michelle Bowman’s focus on interest rate cuts during her speech on Saturday. Bowman noted that there is “welcome” progress on inflation, even if inflation remains “uncomfortably above” the central bank’s 2 percent target.

Markets remain in a wait-and-see mode before taking any calls on the next gold price direction, as repositioning could be seen heading into Wednesday’s US CPI showdown. The annual headline CPI is set to rise 2.9% in July after rising 3.0% in June. Meanwhile, core inflation is expected to ease slightly to 3.2% year-on-year in July, from June’s 3.3% print.

Gold Price Technical Analysis: Daily Chart

As seen on the daily chart, the price of gold is holding its range while holding in a symmetrical triangle formation.

The key leading indicator, the 14-day Relative Strength Index (RSI), is holding well above the 50 level, suggesting upside risks remain in place for the gold price in the near term.

Gold buyers also remain hopeful as long as the 21-day simple moving average (SMA) at $2,417 holds.

However, if the pullback extends, sellers need to break the 21-day SMA on a daily closing basis to unleash even more downside.

Further south, the $2,400 level will come into play, below which the uptrend support at $2,388 will be threatened.

Alternatively, the immediate upside barrier is seen at the August 5 high of $2,459, above which the downtrend line resistance at $2,465 and the two-week high of $2,478 will be challenged.