Gold Prices Surge Amid Fed’s Dovish Remarks and Rising Middle East Tensions
On Wednesday, spot gold prices surged over $36, closing at $2,446.91 per ounce after rising to a high of $2,450.93 per ounce during the New York trading session. This increase was driven by Federal Reserve Chairman Jerome Powell's dovish remarks, which affected the U.S. dollar and bond yields, and escalating tensions in the Middle East.
Gold prices rose sharply following the Fed's decision to keep interest rates unchanged. Powell hinted that future monetary policy would increasingly consider U.S. employment data, noting that inflationary pressures have lessened and acknowledging the risks in the labor market. He emphasized that while the Fed is prepared for potential rate cuts, decisions will depend on forthcoming data, with a possible rate cut as early as September.
The Federal Open Market Committee (FOMC) maintained the federal funds rate at 5.25% to 5.5%, the highest in over 20 years, while indicating a possible rate cut if inflation continues to cool. The FOMC statement highlighted progress toward the 2% inflation goal, with some shifts in focus to dual mandate risks.
Powell noted that the current economy differs significantly from a year ago, with the labor market showing signs of normalization. He warned that premature rate cuts could reverse inflation improvements, whereas delayed cuts might weaken the economy. The committee might discuss rate cuts in the September meeting, contingent on supportive data.
Market reactions included a sharp drop in U.S. Treasury yields, with the 10-year benchmark falling nearly 8 basis points to 4.066%, weakening the U.S. dollar. The Dollar Index dropped 0.42% to 104.03.
Geopolitical risks further boosted gold's appeal as a safe-haven asset. Following a recent Hezbollah attack on Israel and Israel's retaliation by killing Hamas leader Ismail Haniyeh in Iran, tensions have escalated. Iranian Supreme Leader Ayatollah Khamenei ordered direct strikes on Israel in response to Haniyeh's assassination, according to reports from three Iranian officials.
This escalation follows an earlier incident in April when Iran launched missiles and drones at Israel in retaliation for an Israeli attack in Damascus, Syria. Iran has labeled recent Israeli actions as a dangerous provocation.
According to FXStreet analyst Christian Borjon Valencia, gold's uptrend remains strong, with momentum favoring buyers. If gold surpasses $2,450 per ounce, resistance levels could reach the all-time high of $2,483 and the $2,500 mark. On the downside, a drop below $2,400 could find support at $2,376, followed by the 50-day SMA at $2,359 and the 100-day SMA at $2,331.
Financial site Economies.com noted that gold's upward trend continues, with expectations to test $2,450. Stability above $2,374.10 is crucial for maintaining this bullish outlook.
