Middle East conflict & US interest rates send Gold back towards all-time highs.

Since reaching a local bottom in October of last year, XAUUSD has experienced a strong uptrend of over 13%. Closing its third consecutive positive session, Gold is inching closer to its all-time high, now sitting just above $2,050 USD per ounce.

From a technical standpoint, Gold is following a well-defined rising channel that has been predominantly respected since November 2023. As the price approaches the midpoint of this channel, there is a possibility, especially on lower time frames, that this point may act as temporary resistance. This is a crucial level to monitor closely.

Image: GOLD Chart

The recent positive momentum in XAUUSD is closely tied to escalating tensions in the Middle East. The enduring conflict between Gaza and Israel, coupled with the initiation of a new US-led conflict in Yemen against the Houthis, has contributed to the precious metal’s strength.

The current economic landscape in the United States, along with projections for rate cuts in 2024, also is playing a pivotal role in Gold’s recent performance. In response to US inflation climbing from nearly 0% to a peak of 9.10% in July 2022, the US Federal Reserve has raised interest rates 11 times. The rates have surged from 0.25% to the current 5.50%.

Image: CPI and Federal Funds Rate (FFR) Chart

Data suggests the possibility of multiple rate cuts in 2024, with some anticipating cuts as early as the March Federal Open Market Committee (FOMC) meeting. According to CME data, market expectations indicate a projection of six rate cuts for 2024, culminating in an effective rate of approximately 3.50-3.75% by year-end.

Image: CME FedWatch

Historically, the appeal of non-interest-bearing assets like Gold tends to rise when interest rates decrease, contributing to the recent upward trajectory of Gold prices.

Gold traders will be closely monitoring the evolving tensions in the Middle East and upcoming US Consumer Price Index (CPI) data. This scrutiny aims to draw insights into the potential timing of Federal Reserve rate cuts and their subsequent impact on Gold’s market dynamics.