Gold Market Weekly Update

This past week, gold prices experienced a downturn as geopolitical tensions in the Middle East began to deescalate, leading to decreased demand for the safe-haven asset. This trend was further influenced by recent U.S. economic data releases, which are shaping the Federal Reserve’s monetary policy approach.

Last week, XAU/USD settled at $2338, down $54 or -2.26%. This is up from a weekly low of $2291. Gold so far, has been struggling to make it through the 100-period Simple Moving Average (SMA) on the daily chart. The said barrier is currently pegged near the $2,345 region and should now act as a key pivotal point amid mixed oscillators on the daily chart. Meanwhile, a sustained strength beyond will be seen as a fresh trigger for bullish traders and lift the Gold price to the next relevant hurdle near the $2,371-2,372 region. The subsequent move up could extend further towards the $2,400 round figure en route to the all-time peak, around the $2,431-2,432 area touched earlier this month.

Impact of Geopolitical Easing

Gold retreated from its recent highs at the start of the week, triggered by a reduction in hostilities between Iran and Israel. As immediate fears of conflict subsided, investors shifted their focus away from safe-haven assets like gold to more risk-oriented investments, contributing to the decline in gold prices.

U.S. Economic Indicators and Fed Policy

The release of the U.S. PCE inflation data has shown persistent inflation pressures, which has led market participants to adjust their expectations towards the Federal Reserve maintaining higher interest rates for a longer period, rather than cutting rates. This sustained strong economic performance suggests that the U.S. economy can withstand prolonged higher rates, which typically reduces the appeal of non-yielding assets like gold.

Treasury Yields and Market Sentiment

Following the easing of Middle East tensions, U.S. Treasury yields rose, indicating a renewed interest in riskier assets. This shift in investor sentiment reflects a broader market adjustment, which saw the dollar maintaining strength and European bond yields experiencing modest increases. Such conditions usually divert investment away from gold and into assets that benefit from a higher yield environment.

Short-Term Market Forecast

In the short term, the outlook for gold remains bearish. The combination of persistent inflation, the Federal Reserve’s stance on keeping interest rates higher for longer, and diminishing geopolitical risks are likely to suppress the traditional rush to gold. Investors are anticipated to lean towards assets that could benefit from a stable to rising interest rate environment, further reducing the attractiveness of gold.

As the market digests the implications of sustained inflation and robust economic indicators, gold’s role as a safe haven may be overshadowed by the strength of the dollar and the allure of

higher yields elsewhere. With these factors in play, the market sentiment towards gold is tilting towards a cautious stance, expecting potential declines in its price.

Japanese Yen resumes its free fall today, after a brief pause, and reaches new 34-year low against Dollar. Yen’s weakness is also broad-based and evident against other major currencies, with EUR/JPY marching towards its 2008 high and GBP/JPY heading to its 2015 peak. It’s clear that the absence of strong verbal interventions from Japanese officials has emboldened Yen bears. At the same time, BoJ’s announcements failed to introduce any hawkish shifts that might have supported the currency.

BoJ’s updates included revised projections that see core-core inflation increasing to 2.1% by fiscal 2026, a development that BoJ views as a positive for inflation outlook. Meanwhile, there were substantial revisions in growth (downgraded) and inflation (upgraded) forecasts for fiscal 2024. Earlier data showed significant drop in Tokyo’s inflation rates due to a one-off factor. But these are not the main drivers for Yen’s decline.

Meanwhile, Dollar is positioned among the weakest performers after failing to sustain gains from a brief rebound overnight. Market focus is shifting to the upcoming US PCE inflation data. Stocks markets fell notably while treasury yield surged after yesterday’s GDP report triggered repricing of Fed rate cut expectations. Odds of Fed keeping interest rates unchanged in September is now up at around. Be these developments have yet to provide a lasting boost to Dollar.

Prepared by: Mr. SAM KIMA, Senior Vice President