Gold price edges higher, Israel strikes Rafah and boosts safe-haven flows

Most recent article: Gold gains today, still ends week down over 3%

  • Gold price gains ground in Monday’s early European session, up 0.30% on the day. 
  • The uptick in yellow metal is supported by the weaker USD and rising Middle East geopolitical risks. 
  • The speeches from the Fed's Bowman, Mester and Kashkari on Tuesday will be closely watched. 

Gold price (XAU/USD) gathers strength on Monday. The softer US Dollar (USD) and the renewed escalating geopolitical tensions in the Middle East provide some support to the yellow metal. In the longer term, the precious metal might be bolstered by the growing central banks' demand for gold. Nonetheless, the lower bets on the Federal Reserve (Fed) rate cut this year and the hawkish stance from Fed officials might exert some selling pressure on XAU/USD as it makes gold less attractive as a store of value when interest rates rise.

On Monday, the US banks will be closed due to the Memorial Day bank holiday. Gold traders will take more cues from the Fed’s speech on Tuesday, including Michelle Bowman, Loretta Mester and Neel Kashkari. The first reading of US Gross Domestic Product (GDP) for the first quarter on Thursday will be in the spotlight, which is estimated to expand 1.5% in Q1. The stronger-than-expected data might boost the Greenback and weigh on USD-denominated gold. 

Daily digest market movers: Gold price attracts some buyers amid the geopolitical risks

  • The Ministry of Health in Gaza said that at least 35 Palestinians were killed and dozens more were injured as a result of Israeli air attacks on a camp in Rafah for displaced people on Sunday, per CNN. 
  • Gold price has increased by over 16% year-to-date, hitting a record high of over $2,400 per ounce in May, according to World Gold Council data. 
  • The US Durable Goods Orders rose by 0.7% MoM in April from the downward revision of 0.8% in March, better than the expectation of -0.8%. 
  • The University of Michigan Consumer Sentiment Index came in at 69.1 in May from 67.4 in April, above the market consensus of 67.5. Inflation expectations for one year rose slightly to 3.3% from 3.2%, while five-year inflation expectations eased to 3% from 3.1%.
  • UBS analysts recently raised their gold price forecast to $2,600 for the end of 2024. Citi analysts predicted gold would hit $3,000 per ounce in the next six to 18 months. 
  • Gold imports to India, the world's second-largest gold consumer, might fall nearly a fifth this year as high prices encourage retail customers to exchange old jewellery for new items, per Reuters.  

Technical analysis: Gold price keeps the bullish picture unchanged on the daily timeframe

The gold price edges higher on the day. The constructive stance of the precious metal remains unchanged as it holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) stands in a bearish zone around 48.5, indicating that consolidation or further downside in gold prices cannot be ruled out. 

The first upside barrier for yellow metal will emerge near the upper boundary of the Bollinger Band at $2,428. Extended gains will see a rally to the all-time high of $2,450 and the $2,500 psychological mark. 

On the downside, the $2,300 round level acts as an initial support level for the precious metal. A break below this level will see a drop to the lower limit of the Bollinger Band at $2,267. The next potential contention level is seen at the 100-day EMA of $2,220. 

US Dollar price this week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Swiss Franc.

USD   -0.04% -0.06% -0.05% -0.21% -0.04% -0.14% 0.06%
EUR 0.04%   -0.03% -0.01% -0.18% 0.01% -0.10% 0.09%
GBP 0.06% 0.03%   0.01% -0.15% 0.04% -0.07% 0.12%
CAD 0.04% 0.01% -0.02%   -0.16% 0.02% -0.09% 0.08%
AUD 0.21% 0.17% 0.14% 0.16%   0.18% 0.07% 0.26%
JPY 0.04% -0.03% -0.03% -0.02% -0.18%   -0.10% 0.07%
NZD 0.14% 0.10% 0.07% 0.09% -0.07% 0.11%   0.20%
CHF -0.05% -0.09% -0.12% -0.10% -0.26% -0.08% -0.19%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.


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