Gold rises on geopolitics and Fed rate cut expectations

• Gold continues to edge higher as fears of an escalation of the Gaza conflict and falling interest-rate expectations support the metal. 
• US inflation data out this week could color expectations of the trajectory for interest rates. 
• The precious metal is trading in an up leg within a sideways trend, with a risk it could extend its trendless mode. 

Gold (XAU/USD) trades in the $2,440s on Monday, clocking up a 0.45% gain from the previous day on a combination of safe-haven demand due to geopolitical risk and rising bets the Federal Reserve (Fed) will move to cut interest rates at its next meeting. The expectation of interest rates falling is positive for Gold since it lowers the opportunity cost of holding Gold which is a non-interest paying asset.

Gold rises on geopolitical risks and bets interest rates will fall

Gold is rising at the start of the trading week as fears the conflict in Gaza is about to escalate send investors into safe-haven assets. Israel is expecting Iran to mount a large-scale military attack on Israel, according to the Israeli Defence Minister, Yoav Gallant, as reported by Axios news. Such an attack would escalate the conflict substantially and threaten global stability. 

The precious metal is further gaining traction as traders continue to bet on the Fed making cuts to its main interest rate, the fed funds rate, in September. The probability of a 0.25% cut in September stands at 49.5% and the chances of a 0.50% cut at 50.5%, according to the CME FedWatch Tool, which calculates the probability based on the price of 30-day fed funds futures. 

US Consumer Price Index (CPI) data for July, to be released on Wednesday, and Producer Price Index (PPI) data on Tuesday could color expectations regarding future changes to interest rates. This in turn could impact Gold. 

US CPI is expected to have risen by 0.2% in July compared with the previous month, both for headline and core. This comes after a 0.1% decline for headline in June (0.1% rise for core). If the real figure overshoots expectations, indicating sticky prices, it could bring into doubt the assumption the Fed will cut aggressively in September, hurting Gold price in the process. 

PPI is forecast to have increased by 0.1% in July when figures are published on Tuesday, after a 0.2% gain in June. 

Technical Analysis: Gold rises up within range

Gold is trading in a sideways trend, within which it is currently rising in an up leg. Given “the trend is your friend” it is expected to continue trading in a range until a significant breakout occurs in either direction. The range is narrowing, suggesting the possibility it might be forming a triangle pattern, but it is too early to say for sure. 

XAU/USD 4-hour Chart

The move up within the range will probably continue until it reaches the range highs at roughly $2,475 before stalling. 

A decisive break above the range ceiling would be required to indicate a more bullish trend was developing. Such a move would likely run up to at least $2,550, calculated by taking roughly the 0.618 Fibonacci ratio of the height of the range and extrapolating it higher. 

A decisive break would be one characterized by a long green candle that pierced clearly through the level and closed near its high, or three green candles in a row that breached the level.