Gold price clings to gains amid escalating tensions in Middle East, focus remains on Fed

Gold price (XAU/USD) catches fresh bids on the first day of a new week and builds on its steady intraday ascent through the early part of the European session. The precious metal breaks through the 50-day Simple Moving Average (SMA) barrier, though bulls need to wait for a move beyond the $2,040-2,042 supply zone before positioning for any further gains ahead of the FOMC decision on Wednesday.

Heading into the key central bank event risk, a further escalation of conflicts in the Middle East turns out to be a key factor acting as a tailwind for the safe-haven Gold price. Meanwhile, the flight to safety drags the US Treasury bond yields lower and further lends support to the XAU/USD. Meanwhile, the US Dollar (USD) remains below a one-month high touched last week and does little to provide an impetus.

That said, diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) in 2024 might continue to act as a tailwind for the USD and cap the upside for the non-yielding Gold price. This, in turn, warrants some caution for bullish traders and makes it prudent to wait for strong follow-through buying before confirming that the precious metal has bottomed out near the $2,000 psychological mark.

Daily Digest Market Movers: Gold price remains supported by global  flight to safety amid geopolitical risks

• The risk of a further escalation of geopolitical tensions in the Middle East weighs on investors' sentiment and lends support to the safe-haven Gold price on the first day of a new week.
• A drone attack on a US base in Jordan killed three US soldiers, marking the first death of US service personnel in the region since the Hamas-Israel war broke out on October 7.
• President Joe Biden doubled down on his pledge of reprisals and said that the US shall respond and hold all those responsible to account at a time and in a manner of our choosing.
• The US Dollar (USD) holds steady just below a one-month peak as investors continue to scale back their expectations for a more aggressive easing by the Federal Reserve.
• Data released on Friday, however, showed that inflation rose modestly in December and reaffirmed expectations that the Fed will start cutting interest rates by the middle of 2024.
• The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index held steady at 2.6% on a yearly basis in December.
• Meanwhile, the annual Core PCE Price Index – considered the Fed's preferred gauge of inflation – decelerated more than expected, to 2.9% from 3.2% in November.
• Other details of the publication showed that Personal Spending rose 0.7% in December while Personal Income grew 0.3%, pointing to strong demand from US consumers.
• This comes on top of the stronger US Q4 GDP print earlier last week and suggested that the economy is still in good shape, further fuelling optimism about a soft landing.
• A modest decline in the US Treasury bond yields keeps a lid on any further gains for the Greenback and might continue to act as a tailwind for the non-yielding yellow metal.
• Traders might also prefer to wait for the FOMC meeting starting on Tuesday and this week's key US macro data, including the Nonfarm Payrolls (NFP) report on Friday.

Technical Analysis: Gold price could appreciate further once the $2,040-2,042 barrier is broken decisively

From a technical perspective, any subsequent move beyond the 50-day SMA hurdle, currently around the $2,027-2,028 region, might continue to attract some sellers near the $2,040-2,042 supply zone. A sustained strength beyond the latter could trigger a short-covering rally and lift the Gold price further to the $2,077 intermediate hurdle en route to the $2,100 round-figure mark.

On the flip side, immediate support is pegged near the $2,012-2,010 area ahead of the $2,000 psychological mark. Some follow-through selling will be seen as a fresh trigger for bearish traders and expose the 100-day SMA, currently near the $1,977-1,976 area. The Gold price could eventually drop to test the very important 200-day SMA, near the $1,964-1,963 region.