Gold Surges to $2,507 as US Dollar Weakens Amid Housing Data, Rate Cut Bets

Gold price (XAU/USD) sustained its strong bullish rally and remained well-bid around the 2,507.70 level, hitting an initial-day high of 2,509.73.

The upward trend can be attributed to the bearish US dollar, which lost traction due to disappointing housing data.

This data showed a drop in single-family homebuilding due to high mortgage rates and prices, contributing to the dollar’s weakness.

Concurrently, the broad-based dollar fell against the yen and other currencies as traders took profits and scrutinized economic data for indications of potential Federal Reserve rate cuts.

Additionally, geopolitical tensions and the anticipation of an imminent Fed rate-cutting cycle have provided further support to gold prices.

Gold Prices Rise as US Dollar Weakens on Rate Cut Expectations and Housing Data

On the US front, the broad-based US dollar edged lower as markets fully priced in a 25 basis point rate cut at the upcoming FOMC meeting in September.

This shift led to a decline in US Treasury bond yields and reduced demand for the USD, which in turn supported gold prices. Recent US macro data showed stronger-than-expected retail sales and a resilient labour market, easing fears of a sharp economic slowdown.

On the data front, the US Census Bureau reported a 1% increase in retail sales for July, and initial jobless claims were lower than anticipated. Despite this, disappointing housing data kept pressure on the dollar, which fell 1.04% against the yen.

The dollar’s recent gains were trimmed as traders took profits and adjusted their positions.

Overall, the FX market saw a ‘corrective’ phase after a rally driven by positive consumer data. Therefore, the US dollar’s decline, driven by expectations of a rate cut and disappointing housing data, bolstered gold prices.

Reduced USD demand and lower Treasury yields increased gold’s appeal, supporting its bullish momentum amid market corrections.

Geopolitical Tensions Drive Gold Prices Higher as Middle East Conflict Escalates

On the geopolitical front, Israel has ordered mass evacuations in northern and southern Gaza, including previously designated “safe zones.” An overnight Israeli attack in central Gaza’s az-Zawayda killed at least 16 people, while ten more were killed in a strike on a residential building in southern Lebanon.

US Secretary of State Antony Blinken will visit Israel to push for a Gaza ceasefire, with recent talks described as “serious and constructive” by mediators from Qatar, Egypt, and the US.

In Gaza, a 10-month-old baby has been diagnosed with polio, a disease the UN says had been eradicated there for 25 years. The conflict has resulted in at least 40,005 deaths and 92,401 injuries in Gaza, with 1,139 people killed and over 200 taken captive in Israel during the recent Hamas-led attacks on October 7.

Therefore, the escalating conflict and uncertainty in the Middle East have likely driven investors toward gold as a safe-haven asset. The heightened geopolitical tensions and humanitarian crisis increase gold’s appeal, supporting its price amid market volatility.

Gold Price Outlook

Gold (XAU/USD) is currently trading at $2,508.14, showing strong bullish momentum after breaking through the significant resistance at $2,477.50. This breakout suggests that gold may continue its upward trend, with the next resistance levels to watch at $2,517.93 and $2,536.50.

Immediate support is now found at $2,477.50, with further support at $2,448.50, where the 50-day Exponential Moving Average (EMA) is also providing a cushion. The Relative Strength Index (RSI) is at 71.86, indicating overbought conditions, but this strong momentum might still push prices higher.

Conclusion: As long as gold remains above $2,477.50, the bullish outlook remains intact. Consider buying on dips above this level, with targets at $2,517.93 and $2,536.50.