Gold balances short-term pressures and long-term bullish momentum

• Stronger-than-expected nonfarm Payroll data and a declining unemployment rate show resilience in the US labour market.

• Renewed conflicts in the Middle East increase risk-off sentiment, potentially benefiting gold in the short term.

• The "cup and handle" pattern in gold's price action signals strong long-term bullish momentum.

The stronger-than-expected Nonfarm Payroll data and declining unemployment rate signal resilience in the US labour market. These metrics bolster the Federal Reserve's hawkish stance, reducing expectations for interest rate cuts. Higher Treasury yields and a surging US Dollar put pressure on gold (XAU/USD) prices. However, geopolitical tensions sustain gold demand and help support its prices.

Geopolitical developments, including escalated sanctions on Russia and intensified military actions in Ukraine, create a mixed outlook for gold. Rising US bond yields reduce gold's appeal, but heightened global tensions sustain demand for the safe-haven metal. Investors often turn to gold during times of geopolitical uncertainty, offering support to its price and preventing significant declines.

Additionally, the renewed conflict in the Middle East further amplifies risk-off sentiment, potentially benefiting gold in the short term. However, the bearish impact of a strong dollar and elevated bond yields continues to dominate market sentiment. Gold prices remain delicate as the market weighs the interplay between economic and geopolitical factors, with safe-haven demand offsetting the Fed-driven headwinds.

Long-term trends show bullish momentum

The chart below highlights a long-term bullish outlook for gold. The price action forms a clear "cup and handle" pattern, a strong continuation signal. After breaking the $1,680 inflecion point, gold confirmed its bullish momentum and moved into higher price zones.

The inside bars of 2021 and 2022 indicate consolidation and strength-building for a breakout. The breakout from this range aligns with the historical trend of steady upward movements in gold prices following significant consolidation phases.

The broader trend remains intact despite short-term pressures from rising US bond yields and a strong dollar. Gold's historical behaviour shows resilience in inflationary and geopolitical uncertainty scenarios, supporting its long-term bullish outlook. As the bullish pattern unfolds, the chart projects a potential move toward $4,000 or higher.

However, the short-term headwinds may create price consolidation, and these consolidations are likely to be buying opportunities for gold. This week, the release of key economic data, such as PPI and CPI, will further guide gold trends.

Bottom line

In conclusion, while short-term headwinds from a strong dollar and rising bond yields may pressure gold prices, the long-term outlook remains bullish. Geopolitical tensions and inflationary risks continue to support gold's role as a safe-haven asset. Historical patterns and technical indicators, such as the "cup and handle" formation, suggest further upward momentum. Investors should view any short-term consolidation as a potential buying opportunity, with gold poised to reach higher prices.

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