The gold price (XAU/USD) surged above $3,400 per ounce, reaching as high as $3,425 during the Asian trading session on Friday. The yellow metal rose 1.15% on the day, marking its second consecutive daily gain, as geopolitical tensions in the Middle East and increasing expectations of Federal Reserve (Fed) rate cuts continue to bolster demand for safe-haven assets.
This climb places gold at a new five-month high, reinforcing its status as a store of value amid global instability. For a comprehensive understanding, the professionals at Gradiopexo explain the topic in detail here.
Geopolitical Risk Boosts Safe-Haven Demand
One of the major drivers of Friday’s rally is the intensification of conflict between Israel and Iran. Late Thursday, Israeli Defense Minister Israel Katz confirmed that the country had launched a “preemptive strike” against Iranian assets and declared a state of emergency, suggesting further escalations may follow.
On Friday, Israeli Prime Minister Benjamin Netanyahu emphasized that operations would continue for several days, targeting the elimination of Iran’s nuclear threat. According to CNN, Netanyahu warned that failure to neutralize Iran’s capabilities could result in a nuclear arms race in the region.
This volatile backdrop has sharply increased geopolitical risk premiums, pushing investors toward low-risk assets like gold. Historically, gold benefits in periods of international uncertainty due to its intrinsic value and role as a hedge against conflict-driven volatility.
The fresh momentum above the psychological level of $3,400 has now opened the door to potential resistance levels near $3,417 and $3,431, with analysts eyeing a possible move toward record highs.
Fed Rate Cut Bets Amplify Bullish Momentum
Simultaneously, macroeconomic dynamics in the United States have added further upward pressure to gold prices. On Thursday, US Producer Price Index (PPI) data came in softer than expected, suggesting waning inflationary pressures. The PPI data has led market participants to reprice expectations for the Federal Reserve’s monetary policy path.
Traders are now factoring in a 25 basis points (bps) rate cut by September, with an increasing likelihood of another reduction in October. This marks a significant shift from earlier projections, which anticipated the second rate cut only in December.
Expectations of lower interest rates tend to undermine the US Dollar (USD) and Treasury yields, thereby enhancing the appeal of non-yielding assets like gold. Since gold is priced in USD, a weaker dollar lowers the cost of gold for holders of other currencies, stimulating demand across global markets.
Inflation and Central Bank Policy Remain Critical Drivers
While geopolitics dominate short-term sentiment, medium-term gold performance will still hinge on the Federal Reserve’s policy decisions. The Fed’s dual mandate of stable prices and maximum employment will be key in determining the interest rate trajectory. Should the inflation trend downward, the case for monetary easing strengthens, reinforcing gold’s position.
In contrast, any sign of resurgent inflation or hawkish commentary from Fed officials could cap gains or trigger a pullback in gold prices. Nonetheless, as of now, the market’s bias has turned strongly dovish, supported by both PPI and broader disinflationary signals.
Impact on the Broader Commodity and Currency Markets
The gold rally is also reverberating through commodity and FX markets. A weaker dollar due to softening rate expectations has lent support not just to gold but also to silver, platinum, and other precious metals.
Meanwhile, the sharp jump in gold prices has triggered technical breakouts in several currency pairs, particularly those that correlate inversely with the USD, such as the Euro (EUR/USD) and Japanese Yen (USD/JPY).
In energy markets, concerns over Middle East instability are placing upward pressure on crude oil prices, adding another layer of inflationary risk that could complicate central bank decision-making. However, as long as the conflict risk premium remains elevated, commodities are likely to remain well-supported.
Conclusion: A Confluence of Catalysts Pushes Gold Higher
The convergence of rising geopolitical tensions, dovish Fed policy expectations, and weaker inflation data has provided the perfect storm for gold bulls.
As the yellow metal breaches the $3,400 mark and approaches key resistance levels, market sentiment continues to shift in favor of a bullish breakout. With both macro and geopolitical catalysts in play, gold is likely to remain a focal point for traders seeking safety, diversification, and inflation hedging.
