Gold Market Dynamics: Risk Aversion and Rate Cut Expectations Provide Dual Support, Gold Prices Near Historic Highs, What's Next for Bearish Prospects?
Recently, the gold market has caught significant attention. Optimism about U.S. rate cuts combined with risk-averse demand has pushed gold prices close to historic highs. However, better-than-expected U.S. durable goods orders for July temporarily caused a dip in gold prices. Despite poor core durable goods data, gold prices still inched up by 0.24% on Monday, closing at $2515.82 per ounce. Previously, gold had hit a record high of $2531.60 last week. In the short term, the trend seems bullish for gold, but the upward momentum appears to be weakening, signaling the possibility of a consolidation phase.
Peter Grant, Vice President and Senior Metal Strategist at Zaner Metals, stated on Monday that dovish signals in Friday's remarks by Powell, market risk aversion, and geopolitical tensions in the Middle East collectively drove gold purchases on Monday.
Earlier on Sunday, Hezbollah launched a barrage of rockets and drones at Israel. Grant added, "My short-term Fibonacci target is $2539.77, with a second target at $2597.15."
Powell's speech supported upcoming rate cuts, emphasizing that a cooling job market would be unwelcome. According to the CME FedWatch Tool, the market has priced in a 69.5% likelihood of a 25 basis point rate cut from the Federal Reserve next month, with a 30.5% chance of a 50 basis point cut.
Industry insiders expect improved demand from India and China, the two major gold-consuming nations, in the coming months. Meanwhile, the dollar rebounded from its eight-month lows, making gold bulls cautious amid rising geopolitical risks in the Middle East, as investors seek safe havens.
With the UK market closed for a holiday, trading volume was lower than usual. Amo Sahota, Executive Director at Klarity FX, stated, "Geopolitical tensions definitely have an impact. The conflict between Israel and Lebanon has certainly affected the market."
At the close, the dollar index was up 0.2%, rising from a year-end low of 100.53 to 100.84. Sahota noted, "Powell's remarks sounded quite aggressive, especially his comments on the job market." He added that Powell did not suggest a gradual approach to rate cuts but indicated substantial cuts if data permits.
Data showed that U.S. durable goods orders grew by 9.9% in July, versus a decline in June. Following the data release, the dollar saw a modest rebound. However, as a barometer of business spending plans, non-defense capital goods orders excluding aircraft fell by 0.1% in July, with June's data revised up to a 0.5% increase.
After the economic data release, U.S. Treasury yields saw minimal changes on Monday. Jim Barnes, Director of Fixed Income at Bryn Mawr Trust, remarked, "Before any significant fluctuations, I would await labor market and inflation data." The U.S. 10-year Treasury yield edged up by 0.9 basis points to 3.816% on Monday.
Analysts at Wells Fargo expect yields to fall on Thursday, attributing this to rebalancing and maturity extension trades earlier this month, along with short covering before the month's auction.
San Francisco Fed President Daly stated that the "time is ripe" for rate cuts, with an initial action possibly involving a 25 basis point cut. With limited economic data in today's session, the focus will be on the latest geopolitical developments. Overall, the upward momentum in gold prices seems to be slowing, and investors should be cautious about the potential for prices to consolidate and form a peak.
Tensions in Ukraine: Russia Launches Massive Airstrikes, Widespread Damage Across the Country
Russia intensified its airstrikes on Ukraine, launching over 200 missiles and drones on Monday, resulting in 7 deaths and significant damage to multiple power facilities. Neighboring Poland reported that drones might have entered its airspace. Kyiv authorities stated that targets included power and other critical infrastructure across the country.
The Commander of Ukraine's Air Force stated on Telegram that they had shot down 102 of the 127 incoming missiles and 99 of the 109 drones. Prime Minister Shmyhal mentioned that 15 regions were affected, while President Zelensky noted substantial damage to the energy sector.
Zelensky said he had discussed countermeasures with top commanders and stated, "We are preparing." U.S. President Biden condemned Russia's attacks, calling them "lawless" and affirmed that the United States would continue to supply Ukraine with significant energy equipment.
Gaza Ceasefire Talks Continue, Details Yet to Be Finalized
U.S. National Security Advisor John Kirby stated that talks on a Gaza ceasefire and hostage agreement are ongoing, with workgroups continuing discussions in the coming days to resolve specific issues. Kirby described the talks as "constructive" and denied any claims that the negotiations had broken down.
Kirby also noted that Hamas officials claimed U.S. statements about the ceasefire talks were "inaccurate," aiming to support Israel's position. Two Egyptian sources indicated that Israel had reservations about the release of certain Palestinian detainees demanded by Hamas, insisting they leave Gaza if released.
As of 07:48 Beijing time, spot gold was at $2515.97 per ounce.
