Gold (XAU/USD) is starting the new week with renewed strength, building on Friday’s bounce from the key $3,000 support level. The precious metal regained momentum on Monday as heightened geopolitical tensions overshadowed the recent improvement in risk appetite.
Gold (XAU/USD) Daily Chart
Past performance is not a reliable indicator of future results.
Mixed Global Sentiment
The return of Israeli air and ground operations in Gaza—after a two-month period of relative calm—has reignited investor demand for safe-haven assets. Gold, traditionally viewed as a store of value during periods of uncertainty, is benefitting from this renewed instability in the Middle East.
Meanwhile, broader risk sentiment has received a slight lift as initial fears surrounding potential tariffs were tempered by suggestions that they may be less severe and widespread than originally expected. This development helped equities recover modestly, though it may have slightly limited gold’s upside in the short term.
Fed Outlook Supports Gold’s Long-Term Appeal
Last week’s Federal Reserve meeting also bolstered gold’s longer-term prospects. Chairman Jerome Powell signaled that the central bank remains committed to economic stability and has chosen to look past short-term inflationary pressures stemming from Trump’s tariff policies. Despite a modest upward revision in inflation expectations, the Fed maintained its guidance for two rate cuts in 2025.
This dovish stance supports gold prices, as lower interest rates reduce the opportunity cost of holding non-yielding assets like gold. Additionally, recent data indicating emerging signs of economic weakness further reinforces the case for policy easing.
Structural Demand for Gold Remains Strong
Beyond the macroeconomic backdrop, demand for physical gold remains robust. Central banks worldwide continue to build their gold reserves, seeking to diversify away from the US’s mounting debt burden. This long-term shift in global reserve strategy suggests a sustained appetite for gold irrespective of short-term market moves.
Key Risk: Upcoming US PCE Data
Looking ahead, a major short-term risk for gold lies in Friday’s release of the US Personal Consumption Expenditures (PCE) price index. A softer reading could deepen the pullback in the US Dollar and US Treasury yields, reigniting bullish momentum in gold and potentially pushing prices above $3,050.
Conversely, a stronger-than-expected PCE print could revive stagflation concerns previously quelled by the Fed. In such a scenario, gold may face renewed selling pressure, possibly falling back below the $3,000 threshold—particularly if the Fed adjusts its guidance to reflect heightened inflation concerns.
Conclusion
Gold’s outlook remains broadly positive, supported by geopolitical uncertainty, a dovish Fed, and ongoing central bank accumulation. While short-term volatility is likely around key data releases, the underlying fundamentals point to sustained strength in gold over the medium term.
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