Wave like movements for gold

After an impactful week that featured the FOMC rate announcement and April’s nonfarm payrolls report, analysts are looking at the dollar and technical indicators to gauge the likely direction of gold prices on Monday.

Spot gold initially pulled back below $2,300 per ounce early during Monday’s trading session but has since shown signs of life. If we consider last 7 days events, we can see that gold did show some wave like movements. Initially it was supported by escalating geopolitical issues but then subdued as the week began. Let’shave a quick look on the key events that resulted in this up down trend-

Middel East Unrest- Israels strike on Rafah pointed to an escalation in the ongoing war with Haman and presented little scope for de-escalation in the Middle East. The move drove up safe haven demand for gold helping the yellow metalrecover past the $2300 level. Little progress in ceasefire talks between the two also factored into some safe haven demand for gold. But later in the week, gold was dampened when the threat of a potential war between Iran and Israel didn’t turn into a full-blown conflict.

US Data – Gold prices were seen moving up in the Asian markets on Monday, further to the drop in the US. Dollar as softer-than-expected U.S payrolls data saw a positive sentiment in the trader’s circler on eventual interest rate cuts by the Fed.

Dollar – Gold took somerelief from the drop in dollar, which was down 0.8% last week due to Fridays payrollsreading. This sparked increased bets that the Fed will begin rate cuts in September.

Inflation – Inflation was seen moving further abovethe Fed’s annual target of 2% in the first quarter, which in turn saw traders price out most expectations for rate cut this year,

Gold Buying – one of the primarydrivers of the price rally in gold was its strong demand from global central banks and Asian households. In China, in spite of gold being expensive post covid, both the Chinese consumers and the Peoples Bank if China (PBOC) continue to buy gold aggressively.

The PBOC increased its gold reserves for 17 consecutivemonths, with a 16 % rise in its gold holdings during this period, as reported by the World Gold Council.

Rampant inflation, a weakening currency and geopolitical tensions are boosting demand for gold in Turkey, according to a World Gold Council report published on Tuesday.

Similarly, countries like India, Kazakhstan and some in Eastern Europe have been active gold buyers in 2024 so far,

Such huge buying signals a trend among global central banks to diversify their reserves aand reduce their dependency on the US dollar.

Taking into consideration key events this year, one of the most importantevents that needs immediate attention is the US elections. The results will hold a significant impact not only on gold but also on world markets.

As far as gold is concerned, a regime change in the White House and Senate has the potential to reduce spending for environmental initiatives financed by the allocations under the Inflation Reduction Act (IRA). This change would be a modest negative for copper and silver, but a positive for precious gold metals.

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