Gold prices surge to record high amid tensions in Middle East

The gold price continues its ascent to new record highs amidst ongoing geopolitical tensions. This upward trajectory remains robust despite diminished expectations of a Federal Reserve rate cut and a bullish US dollar.

However, the market appears to be reaching extremely overbought conditions, potentially prompting profit-taking activities around the precious metal.

During the early European session on Friday, the gold price (XAU/USD) surged to the $2,400 level, marking a fresh all-time peak. Investors remain wary of geopolitical risks, particularly in the Middle East, which continues to drive positive momentum in the gold market. Additionally, anticipation of interest rate cuts by major central banks throughout the year provides further support to gold, given its status as a non-yielding asset.

Conversely, the US dollar has strengthened to its highest level since November 14, buoyed by speculation that the Federal Reserve may delay rate cuts. This sentiment was bolstered by higher-than-expected US consumer inflation figures released earlier in the week, which contributed to elevated US Treasury bond yields. Despite the USD’s strength, it has not dampened the bullish sentiment surrounding gold, indicating that the path of least resistance for XAU/USD remains upward.

In terms of recent market movements, heightened tensions in the Middle East, particularly following a suspected Israeli strike on an Iranian embassy in Syria, have propelled gold prices to new highs. Additionally, the release of the US Producer Price Index, which was cooler than expected, has fueled hopes for a Fed rate cut and further supported XAU/USD.

However, market expectations regarding Fed rate cuts are mixed, with some traders anticipating a delay until the September policy meeting and fewer rate cuts overall this year, according to the CME Group’s FedWatch tool. Comments from New York Fed President John Williams and Richmond Fed President Thomas Barkin suggest a cautious approach to monetary policy, despite concerns about inflation.

From a technical standpoint, despite the overbought condition signaled by the Relative Strength Index (RSI) on the daily chart, bullish momentum remains strong. However, profit-taking near the $2,400 level could be expected, with support levels identified around $2,370, $2,352-2,350, and $2,332. Further downside movement could potentially lead to a retreat towards the $2,300 neighborhood.