Gold Rally Gains Momentum on Dovish Fed Bets, Global Uncertainty

Gold (XAU/USD) surged this week, climbing above the $2,400 mark after benefiting from declining US Treasury bond yields and weak US economic data following the Fed’s policy announcement. Escalating geopolitical tensions and expectations of a Fed rate cut also supported Gold’s rally. After two consecutive weeks of losses, Gold has gained over 3% since Monday’s opening. Next week’s economic calendar will include several high-tier data releases, but geopolitical developments are likely to continue influencing price action.

Geopolitical Tensions in the Middle East Boost Gold

Gold started the week quietly as investors held off on large positions ahead of key macroeconomic events. After a flat first trading day, XAU/USD gained bullish momentum on Tuesday, surpassing $2,400. Reports of the death of Hamas political leader Ismail Haniyeh in Iran during a visit for the inauguration of Iran’s new President Masoud Pezeshkian heightened geopolitical tensions. Iran’s Supreme Leader Ayatollah Ali Khamenei vowed “harsh punishment” for Israel in retaliation, driving fears of a deepening Middle East crisis and pushing Gold higher.

Fed Policy and Economic Data Support Gold

On Wednesday, the US Federal Reserve (Fed) announced it would keep monetary policy unchanged, as expected. Fed Chairman Jerome Powell mentioned a “real discussion” about reducing rates at the July meeting, hinting that a rate cut could be possible in September. Despite the CME FedWatch Tool already pricing in a 25 basis points (bps) cut for September, the 10-year US Treasury bond yield fell over 2.5% after the Fed announcement, providing further support for Gold.

Disappointing US economic data continued to drive Gold higher in the second half of the week. As the 10-year yield dropped below 4% for the first time since early February, Gold extended its gains, climbing above $2,460. The number of initial unemployment benefit claims in the US rose to 249,000 in the week ending July 27, the highest since August 2023, while the ISM Manufacturing PMI dropped to 46.8 in July from 48.5 in June, indicating a further contraction in manufacturing activity.

On Friday, the US Bureau of Labor Statistics (BLS) reported a rise in Nonfarm Payrolls by 114,000 in July, with June’s increase revised down to 179,000 from 206,000. The Unemployment Rate edged up to 4.3% from 4.2% in June, and annual wage inflation, measured by Average Hourly Earnings, softened to 3.6% from 3.8%. Following the weak jobs data, the 10-year US yield fell below 3.8%, pushing Gold above $2,470 during the American session.

Geopolitical and Economic Outlook for Gold Investors

Next week, the ISM Services PMI for July will be a key focus in the US economic calendar, with markets expecting a rise to 51 from 48.8 in June. If the data remains below 50, the US Dollar (USD) may struggle to find demand, potentially benefiting Gold. Conversely, a positive surprise could support the USD and limit XAU/USD’s upside.

On Wednesday, China, the world’s largest Gold consumer, will release its July Trade Balance data. Recent rate cuts by the People’s Bank of China (PBoC) have revived fears of a worsening Chinese economic outlook, impacting Gold. If the Trade Balance data disappoints, XAU/USD could lose ground midweek.

While the economic calendar lacks other high-tier data releases that could affect Gold next week, investors will remain attentive to geopolitical headlines and comments from Fed officials, now that the blackout period has ended.

If Fed officials counter market expectations for multiple rate cuts this year, US Treasury bond yields could rebound, causing a potential correction in XAU/USD. However, if tensions in the Middle East escalate with Iran taking retaliatory action, Gold is likely to continue to attract demand as a safe haven.