Gold Price Hits Fresh Record Highs Amid Middle East Tensions
The gold price surged to a new all-time high near $2,290 in early trading on Wednesday as tensions escalated in the Middle East. Despite tempered expectations for a June interest rate cut by the Federal Reserve, the US dollar and Treasury bond yields weakened, providing support to the precious metal. However, caution is advised for buyers as the overbought Relative Strength Index (RSI) signals a potential correction.
Geopolitical tensions in the Middle East, exacerbated by recent events between Ukraine and Russia, continue to bolster the gold price, outweighing uncertainties regarding the Federal Reserve’s monetary policy.
On Tuesday, a Ukrainian drone attack on one of Russia’s largest refineries led to a surge in oil prices, driving investors towards gold as a hedge against inflation. Moreover, reports of Israeli airstrikes on an Iranian embassy compound in Syria further fueled demand for gold as a safe-haven asset. Iranian President Ebrahim Raisi condemned the attack, warning of retaliation.
Market sentiment remains cautious following a devastating 7.7 magnitude earthquake in Taiwan, which resulted in the collapse of 26 buildings and triggered tsunami alerts. Additionally, Wall Street witnessed a sell-off amid fading expectations of a June rate cut by the Federal Reserve and robust US jobs data.
Despite the risk-off sentiment, the US dollar failed to capitalize due to lower Treasury bond yields, as investors sought safety in US government bonds.
Strong US economic data, including the ISM Manufacturing PMI and JOLTS Job Openings, have contributed to the recent increase in Treasury bond yields, suggesting resilience in the US economy and potentially delaying a dovish policy shift by the Fed.
Recent comments from Federal Reserve officials have also influenced market expectations. Cleveland Fed President Loretta Mester anticipates interest rate cuts this year but rules out a move in May, while San Francisco Fed President Mary Daly views three rate reductions as a reasonable baseline.
Focus now shifts to high-impact US ADP Employment Change data and Fed Chairman Jerome Powell’s speech for further insights into the Fed’s rate cut outlook. Eurozone inflation data, ISM Services PMI, and speeches from other Fed policymakers are also on investors’ radar.
Despite ongoing buying interest, caution prevails as the 14-day RSI remains overbought. Initial support for any potential retracement is seen at $2,266, followed by the psychological level of $2,250. A breach of this level could lead to a sharp decline towards $2,200, while further upside targets lie at $2,300 and $2,350.
