Gold prices (XAU/USD) rallied on Monday, buoyed by a weaker US Dollar (USD) and escalating geopolitical tensions in the Middle East. The precious metal found support as renewed clashes in the region raised concerns, prompting investors to seek safe-haven assets like gold. Furthermore, the prospect of increased central bank demand for gold in the long term added to its appeal.
However, gold faced pressure from lower expectations of a Federal Reserve (Fed) rate cut this year and a hawkish stance from Fed officials. The anticipation of rising interest rates tends to diminish gold’s allure as a store of value.
Monday saw US banks closed due to the Memorial Day bank holiday, limiting market activity. Traders are poised to monitor speeches from Fed officials scheduled for Tuesday, including Michelle Bowman, Loretta Mester, and Neel Kashkari. Additionally, Thursday’s release of the first-quarter US Gross Domestic Product (GDP) figures is expected to be a focal point, with a forecasted expansion of 1.5%. Positive GDP data could strengthen the Greenback and weigh on USD-denominated gold.
Geopolitical tensions escalated over the weekend, with the Ministry of Health in Gaza reporting casualties from Israeli air attacks. These events, coupled with gold’s year-to-date increase of over 16% and bullish forecasts from analysts, contributed to the metal’s attractiveness.
UBS analysts recently revised their gold price forecast to $2,600 by the end of 2024, while Citi analysts predicted a surge to $3,000 per ounce in the next six to 18 months. However, gold imports to India, the world’s second-largest gold consumer, may decline due to high prices prompting retail customers to exchange old jewellery for new items.
Technical Analysis
On the daily timeframe, gold maintained a bullish stance, remaining above the key 100-day Exponential Moving Average (EMA). Despite this, the 14-day Relative Strength Index (RSI) indicated a bearish sentiment, hovering around 48.5, suggesting possible consolidation or downside movement.
In terms of resistance, the upper boundary of the Bollinger Band at $2,428 marks the first upside barrier, followed by potential rallies towards the all-time high of $2,450 and the psychological level of $2,500.
Conversely, initial support is observed at the $2,300 round level, with further downside potentially testing the lower limit of the Bollinger Band at $2,267. The 100-day EMA at $2,220 presents another significant support level.
