Gold surged around 2% yesterday amid still-tense situation in the Middle East. White House spokesman Kirby said that US expects Iran and its proxies to launch a significant set of attacks against Israel within a week, in retaliation for the killing of Ismail Haniyeh, political leader of Hamas, in Teheran on July 31, 2024. However, FOX News reported yesterday that the attack may occur as soon as within the 24 hours. So far, no attack was launched, and precious metals are erasing part of yesterday's gains today. Nevertheless, it is an important story to watch that may have big implications for financial markets, especially oil given that the Middle East accounts for around a third of global supply. Should Iran launch an attack on Israel, and it causes significant damage, Israel would likely retaliate, bringing the whole region closer to an all-out war between two key players in the area. Such a scenario would most likely boost safe haven flows on the markets, and it should support gold prices.
However, apart from geopolitics, there is also another important factor gold traders need to pay attention to - monetary policy. Money markets have become very dovish and see around 100 basis points of easing in the United States by the end of this year. Given that there are 3 FOMC meetings left this year, it means that market expect at least one 50 basis point rate cut. Those expectations will be put to the test this week, with release of US inflation data for July. CPI report scheduled for Wednesday, 1:30 pm BST is a key release of the week, but traders will also pay attention to today's PPI reading (1:30 pm BST) given that it will be released ahead of CPI data and may serve as a hint (PPI data is usually released after CPI prints). A higher-than-expected reading could see dovish bets in the market get trimmed, and it would put pressure on gold prices.
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Open account Try demo Download mobile app Download mobile appTaking a look at GOLD chart at H1 interval, we can see that the price tested $2,475 per ounce area yesterday, marked with highs from July and early-August. Bulls failed to break above this area, and gold price dropped around $10 since. However, a dovish surprise in US inflation data this week or escalation in the Middle East could provide more fuel for gains on the gold market and a break above July's all-time highs near $2,484 cannot be ruled out in such a scenario.
Source: xStation5
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