XAU/USD. Gold Balances Strong U.S. Data with Geopolitical Risks

[Ben Graham]

Gold is once again attracting buyers, despite the release of positive U.S. economic data, against the backdrop of escalating geopolitical risks.

Earlier this week, comments from Federal Reserve Chair Jerome Powell pushed the U.S. dollar to a two-week high, putting pressure on gold prices. Powell sought to temper expectations of significant rate cuts, noting that overly sharp easing could leave the fight against inflation unfinished and require policy adjustments. Nevertheless, traders still expect the Fed to cut rates in October and December, following this month's 25 basis point reduction prompted by labor market concerns. This "dovish" outlook limits further dollar gains and supports gold prices.

U.S. President Donald Trump escalated rhetoric toward Russia, stating that NATO countries should shoot down Russian aircraft violating their airspace. Trump also expressed confidence that Ukraine, with the support of the European Union and NATO, would be able to reclaim territories lost during the conflict. This marks a notable shift in Trump's stance on Russia. In response, Kremlin spokesman Dmitry Peskov stressed that Russia would continue its offensive to protect its interests, saying the idea of returning territories to Ukraine was misguided.

In addition, the United States assured Arab and Muslim leaders it would prevent Israeli Prime Minister Benjamin Netanyahu from annexing the West Bank of the Jordan River. At the same time, Iran-backed Houthis in Yemen claimed responsibility for a drone strike on the Israeli city of Eilat on Wednesday. All these developments heighten geopolitical tensions, keeping gold attractive as a safe-haven asset.

For better trading opportunities, markets this week remain focused on the U.S. Personal Consumption Expenditures (PCE) index, due Friday. This indicator is key for assessing dollar demand and will largely shape the short-term dynamics of XAU/USD.

From a technical perspective, while oscillators on the daily chart remain positive, bears are currently at a disadvantage. However, with the Relative Strength Index (RSI) in overbought territory, a correction before the continuation of the uptrend seems inevitable.

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