Gold just hit all-time highs after rebounding on geopolitical risk

• Gold is extending its rally since Fed Chairman Powell’s speech on Friday as tensions in the Middle East rose over the weekend.
• The precious metal was already rising after the Fed chairman’s speech signaled the start of a lower interest rate regime.
• Technically, XAU/USD is resuming its overall uptrend and approaching the next target of $2,550.

Gold (XAU/USD) is trading as high as $2,520 on Monday, just off its all-time highs of $2,531, as a combination of safe-haven demand triggered by rising geopolitical tensions in the Middle East and rising confidence in US interest rates. tracks lower in the medium to long term, makes the non-interest-paying asset more attractive to investors.

Gold rises as risk aversion helps safe-haven demand

Gold traded higher on Monday as geopolitical risk aversion boosts investor demand for safe havens, of which gold is a notable example.

Rising tensions in the Middle East are a factor after the Israelis launched a massive pre-emptive strike on Hezbollah positions in Lebanon over the weekend. Hezbollah then retaliated with a flurry of rockets and drone strikes in northern Israel. Fears that Iran could go into conflict after weeks of threats persist.

Powell’s speech takes Gold higher after the profound change in language

Gold rose more than a percentage point on Friday after Federal Reserve (Fed) Chairman Jerome Powell gave a speech at the central banking symposium in Jackson Hole in which he gave the clearest signals yet that the Fed will cut interest rates .

Powell expressed concern that the US labor market is slowing due to the impact of persistently high interest rates, which have remained at a peak range of 5.25%-5.50% since July 2023. Although they have successfully reduced inflation, were now having a negative impact on company employment.

“Inflation upside risks have receded, downside risks to employment have increased,” Powell said, adding that “the cooling of the labor market is unmistakable, it’s no longer overheated.”

U.S. government bond yields, which reflect investors’ outlook on inflation and interest rates, fell after his speech. The yellow metal tends to appreciate when yields fall because it lowers the opportunity cost of holding gold that doesn’t pay interest.

The U.S. dollar index ( DXY ), which measures the greenback’s strength against a trade-weighted basket — and is negatively correlated with gold — fell to a new year-to-date low of 100.53 this morning as traders they continued to digest. Powell’s comments.

Gold has benefited from heightened expectations that the Fed will make a “mega” 0.50% interest rate cut in September – double the usual 0.25% cut. From a mid-20% chance before his speech, the odds of such a higher cut rose again to the mid-30% afterward, according to the CME FedWatch tool, which uses the price of the 30-day food fund. futures in its calculations.

Technical Analysis: Gold extends the bounce from the top of the old range

Gold (XAU/USD) extends the rebound from support at the top of its old range. Despite the recent sideways trading, the pair remains in an uptrend and given that “the trend is your friend”, this continues to favor longs over shorts.

XAU/USD Daily Chart

The breakout of the range on August 14 generated a bullish target at around $2,550, calculated by taking the 0.618 Fibonacci ratio of the height of the range and extrapolating it higher. This target is the minimum expectation for a continuation after a breakout based on the principles of technical analysis.

A break above the August 20 all-time high of $2,531 would provide further confirmation of a higher continuation towards the $2,550 target.

Alternatively, a back-to-range break would nullify the up-projected target. Such a move would be confirmed on a close below $2,470 (August 22 low). It would change the picture for gold and cast doubt on the near-term uptrend.

However, gold is in an uptrend over the medium to long term, which further supports an overall bullish outlook for the precious metal.