Fed and Middle East Tensions Push Gold Higher

Gold prices are rising by 2.2% to $2440 per troy ounce. Prices reached $2458 per ounce this week, nearing the all-time high of $2483. New records could be imminent for several reasons.

First, the Federal Reserve (Fed) has confirmed potential interest rate cuts in September. “A rate cut could be on the table in the September meeting,” Powell told reporters after the central bank decided to keep rates stable in August. He also noted progress in combating inflation. This dovish shift is a significant upside factor for gold prices. Bets on interest rate cuts by the Fed in September are at 100%, according to the CME FedWatch Tool. U.S. 10-year Treasury yields dropped to 4.029%, the lowest since January 28, providing solid support for rising bullion prices.

Additionally, large investors are increasing their stakes in gold. The SPDR Gold Trust (GLD) reported $1.1 billion in net inflows over the past four weeks. This could translate into a 4-5% upside, potentially reaching new historic records of $2500-2520 per ounce.

Rising tensions in the Middle East are also pushing prices up. Hamas's political chief Ismail Haniyeh has been assassinated in Tehran, prompting Iran’s Supreme Leader Ayatollah Ali Khamenei to order a retaliation strike against Israel. The last significant strike by Iran on Israel in early April caused gold prices to surge by 4% two days before the event. A similar jump to $2500 per ounce is possible this time.

The U.S. labor market report, expected this Friday, is anticipated to show further cooling. The Fed has acknowledged the risk of rising unemployment. If the report indicates a decline, the Fed might consider a 0.50 basis point interest rate cut in September.

Technically, gold prices have limited upside above $2500 per ounce, as overbought conditions could increase the risk of a downturn without a significant correction.