XAU/USD eyes record highs at $2,532 amid dovish Fed and geopolitical risks

• The price of gold is holding on to recent gains above $2,500 early Monday amid escalation in the Middle East.
• The US dollar takes losses with US Treasury bond yields on the favorable Fed outlook.
• The price of gold looks set to retest all-time highs as the daily technical setup favors buyers.

The gold price is consolidating the previous week’s gains above $2,500 at the start of the week on Monday. Gold buyers are catching their breath after posting their second straight weekly gain as they return to an all-time high of $2,532.

Gold price eyes US data for more gains

The underlying bullish tone around the gold price is mainly attributed to sustained weakness in the US dollar alongside negative US Treasury bond yields, following upbeat remarks by US Federal Reserve (Fed) Chairman Jerome Powell at the Jackson Hole Symposium on Friday.

Powell clearly confirmed that the Fed’s easing cycle will begin in September, noting that “the time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on the data received, the evolution of the perspectives, and the balance of risks”.

“Positive risks on inflation have diminished. And downside risks to employment have increased. As we outlined in our last FOMC statement, we are mindful of the risks to both sides of our dual mandate,” Powell added.

Those comments were enough to seal a September Fed rate cut, with markets currently pricing in a 38% chance of a 50 basis point (bps) rate cut in September, while the odds of a rate cut of 25 bps are 62%, CME Group’s FedWatch. The tool was presented on Monday. The price of non-interest bearing gold tends to benefit from a low interest rate regime.

Meanwhile, traditional safe haven gold prices are also capitalizing on escalating geopolitical tensions in the Middle East after Israel launched a pre-emptive airstrike on Hezbollah in southern Lebanon on Sunday, using 100 warplanes to hit 40 locations, as as Hezbollah was said to be launching a large-scale rocket and missile attack in northern and central Israel, targeting Mossad, the Israeli spy agency.

Adding further to the claim for sanctuary for the shiny metal, Axios reported that “Gaza talks will continue in the coming days through working groups to address remaining issues and details,” as cease-fire talks in Cairo end without any agreement.

Amidst these favorable fundamentals, the price of gold remains exposed to upside risks, with the technical setup on the daily chart also leaning in favor of buyers. The next rise in the price of gold will likely be driven by top-level data on US durable goods orders due later in the month in US trading.

Gold Price Technical Analysis: Daily Chart

The short-term technical outlook for the gold price continues to suggest upside risks, while buyers are holding strong above the triangular resistance, which has become support at $2,470.

The price of gold is holding up against a symmetrical triangle confirmed a few weeks ago. The 14-day Relative Strength Index (RSI) is comfortably above 50, currently near 63, indicating more gains ahead.

Gold buyers need to recover the record level of $2,532 to face the next key barrier at the $2,550 level.

Acceptance above the latter could challenge the round level of $2,600 en route to the triangle target measured at $2,660.

Conversely, if the gold price fails to sustain at higher levels, a correction could unfold towards the $2,500 mark, below which Friday’s low of $2,485 will be contested.

A sustained breach of the latter could expose downside to the aforementioned triangle resistance turned support at $2,470.