Gold Prices Poised for Weekly All-Time High Close

Gold prices are set to close at a weekly all-time high as they climb above AU$3,764 (US$2,450), driven by the Federal Reserve's hints at possible rate cuts and escalating geopolitical tensions in the Middle East. These macroeconomic factors are anticipated to sustain constructive gold prices through the latter stages of the year. We discuss…

 Gold has been on the rise, reaching a two-week high of AU$3,764 (US$2,462.30) in the latest trading session. This uptick is largely due to a drop in U.S. bond yields, with investors anticipating that the Federal Reserve will start normalising policy by September. It's significant that 10-year U.S. Treasury yields have dipped below 4.0% for the first time in half a year. Lower yields on interest-bearing assets make gold, a non-yielding investment, more attractive since the cost of holding it decreases.

 Expectations for the Fed to cut interest rates in September have grown stronger after dovish guidance on Wednesday. The Fed kept interest rates steady between 5.25% and 5.50%, noting that inflation is cooling and the labour market is softening, which makes a September rate cut look likely.

 Federal Reserve Chair Jerome Powell suggested that if inflation continues to drop as expected, economic growth remains strong, and the labour market stays stable, a rate cut could be on the agenda for the September meeting.

Other Market Drivers

• Iran has threatened to retaliate against Israel for the air strike that resulted in the death of Hamas leader Ismail Haniyeh in Tehran, stating that Israel will "pay a heavy price." This threat has raised the chances of a broader conflict in the Middle East. Traditionally, during geopolitical tensions, investors often flock to precious metals like gold.
• At the same time, the U.S. Dollar (USD) experienced fluctuations due to lower-than-expected preliminary Q2 Unit Labor Costs and ISM Manufacturing PMI reports for July. The U.S. Dollar Index (DXY), which tracks the value of the dollar against six major currencies, struggled near 104.40 after bouncing back from a low of 103.86.
• The Q2 Unit Labor Costs, which reflect the expenses borne by employers for their employees, fell to 0.9%, down from an anticipated 1.8% and a previous figure of 3.8%, revised from 4.0%. Additionally, the PMI report showed a drop in manufacturing activity to 46.8, contrary to economists' predictions of a rise to 48.8 from June's 48.5. A reading below 50.0 indicates a contraction in manufacturing activities.

Technical Analysis

 Gold prices are trading within a channel formation on a daily timeframe, showing a slight upward trend but largely remaining sideways for over three months. The 50-day Exponential Moving Average (EMA) around AU$3,649 (US$2,370) continues to support gold price bulls.

 The 14-day Relative Strength Index (RSI) has risen to nearly 60.00. Should the RSI surpass this level, momentum is expected to shift further upwards.

 A new upward move would be confirmed if gold prices break above the all-time high of AU$3,818 (US$2,483.75), propelling them into uncharted territory.

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