Gold prices (XAU/USD) have seen a strong upward movement in Wednesday’s European session, reaching near $2,420, as its safe-haven appeal increases due to escalating tensions in the Middle East. Fears of a wider conflict between Israel and Iran have fueled investor interest in gold as a hedge against geopolitical risks.

Market Drivers:

• Middle East Tensions: Reports of an Israeli airstrike on Tehran that killed Hamas leader Ismail Haniyeh have heightened concerns about potential retaliation and a broader conflict, boosting gold’s safe-haven appeal.
• Fed Policy Outcome: Investors are closely watching the Federal Reserve’s (Fed) monetary policy announcement later in the day. The Fed is expected to keep interest rates unchanged, but market participants anticipate a dovish message from Fed Chair Jerome Powell, potentially signaling a rate cut in September.
• Weakening US Dollar: The US Dollar Index (DXY) has declined, further supporting gold prices. The weakening dollar can be attributed to uncertainty about the Fed’s policy direction and the potential impact of geopolitical tensions.

Economic Data and Outlook:

Recent US economic data, including the June Unemployment Rate and JOLTS Job Openings, suggests a moderating labor market. While inflation has cooled somewhat, it remains above the Fed’s 2% target, making it a challenging decision for policymakers regarding the timing of rate cuts.

Investors will also be monitoring the upcoming ADP Employment Change data for July, as well as the ISM Manufacturing PMI and Nonfarm Payrolls (NFP) for July, due later this week. These data releases could provide further clues about the Fed’s future monetary policy actions.

Technical Analysis:

Gold price is trading within a slightly rising channel on a daily timeframe. The 50-day Exponential Moving Average (EMA) continues to offer support to gold bulls, while the 14-day EMA indicates some indecision among market participants.

A break above the all-time high of $2,483.75 could propel gold prices into uncharted territory. On the downside, the upward-sloping trendline around $2,225 could act as a significant support level.