Gold (XAU/USD) On The Doorstep Of $2,500 

Key Points

• Gold (XAU/USD) is up more than 2% over the past week, posting new all-time highs at $2450. 
• Geopolitical uncertainty and Fed policy are the two primary market drivers.
• The key technical level in the XAU/USD is the Daily 38% Fibonacci Retracement ($2405). Above this level, a strong bullish bias is warranted; if it gives way, $2377 is the next premium long entry.

The past five sessions have been active in the gold market. After posting a new all-time high just above $2,450, bullion has entered consolidation between $2,400 and $2,430. With June’s trade rapidly approaching, many metals traders believe a hard test of $2,500 to be inevitable.

Geopolitical Uncertainty

2024 is a year of political and geopolitical uncertainty. Escalations in the Russia/Ukraine and Israel/Hamas wars have boosted investor angst around the globe. In the US, the 2024 Presidential Election cycle is in full swing. Although not yet a premier market driver, the POTUS election is certain to have a significant impact on the gold market.

As a general rule, geopolitical uncertainty leads to bullish gold pricing. Over the past week, the world has witnessed the assassination attempt of Slovakia’s Prime Minister Robert Fico and the death of Iranian President Ebrahim Raisi in a helicopter crash. These two events have contributed to the perception of global unrest; the result has been a seven-day gain in gold of more than 2%. 

The bottom line? Geopolitical tensions continue to be a leading market driver of the bullish gold market.

FOMC Minutes

The number two market driver in the gold market is the monetary policy of the US Federal Reserve. Wednesday, the FOMC Minutes will provide some insight into the inner dialogues of the Federal Open Market Committee (FOMC). 

At this point, the market is pricing in more than a 60% chance of a rate cut in September. However, several FOMC members have made news this week with policy comments. San Francisco Fed President Mary Daly stated that she “is not confident” that inflation is sustainably coming down to the 2% target. Fed Vice Chair Michael Barr stated that Fed policy is in “a good position” to take a wait-and-see approach to inflation; Fed Governor Christopher Waller stated that he needs to see several more months of inflation data before “being comfortable” in supporting easing policy.

Is a hawkish theme emerging from the FOMC? Perhaps. The FOMC Minutes release will give the markets a better understanding of how hawkish or dovish the Fed may be. Signs of conflict in the FOMC boardroom will be the key. Is it time to cut rates? Does holding rates higher for longer bring on a recession? Could an emergency rate hike be in the cards? We’ll soon find out when the FOMC Minutes hits newswires Wednesday at 18:00 GMT.

Daily 38% Fibonacci Retracement Proves Valid

The recent breakout in the XAU/USD has been a beautiful thing for gold bugs. Pullback buys from the Daily 38% Fibonacci retracement ($2405) have been money in the bank.

The key level in this market is $2405. As long as bidders defend this area, then a strong bullish bias is warranted. If not, discount buys from the Daily 62% Fibonacci retracement ($2377) will become a premium play. Should bidders send the XAU/USD skyward, shorts from the $2494 area are fantastic bearish scalps.

Overall, it’s a great time to be a gold trader. Geopolitical uncertainty and Fed policy are sure to drive volatility over the near term. Today’s key market driver is the FOMC Minutes; if you’re active in the bullion markets, beware of the release at 18:00 GMT on Wednesday.