Gold (XAUUSD) extended its bullish streak on Monday, surging to around $3,486, its highest level since April 22, as investors flocked to safe-haven assets. The yellow metal’s rally, marking gains in six of the last seven sessions, is being driven by weaker US Dollar dynamics, firm rate cut expectations, and escalating global geopolitical tensions.
Fed Rate Cut Bets Fuel Rally
Friday’s US PCE Price Index data reaffirmed expectations that the Federal Reserve will cut interest rates this month. Core PCE rose slightly to 2.9%, in line with forecasts, while headline PCE held steady at 2.6%. According to the CME FedWatch Tool, markets are pricing in an 87% probability of a 25-basis-point cut on September 17, with at least two cuts projected by year-end. This dovish outlook has kept the US Dollar under pressure, providing a strong tailwind for gold.
Fed Independence Concerns Weigh on USD
Political drama added to USD weakness as President Trump dismissed Fed Governor Lisa Cook over alleged mortgage fraud. Cook’s refusal to step down and legal action against the administration have fueled concerns over the Fed’s autonomy. Markets fear political interference could undermine policy credibility, further supporting safe-haven flows into gold.
Geopolitical Risks Drive Safe-Haven Demand
Rising global tensions are amplifying gold’s momentum:
Russia-Ukraine conflict: Russia launched 598 drones and decoys and 31 missiles, while Ukraine vowed retaliation with strikes inside Russian territory.
Middle East tensions: Israeli forces intensified operations in Gaza, and Hamas confirmed the death of its armed wing’s spokesperson, Abu Ubaida.
These developments have heightened market risk aversion, bolstering gold’s appeal as a hedge against uncertainty.
Market Outlook
With US markets closed for Labor Day, trading volumes are thin, but volatility could return later in the week. Traders are eyeing key US economic data, including Nonfarm Payrolls (NFP) on Friday, for clues on the Fed’s policy trajectory.
Key Highlights
Gold rallies to $3,486, highest since April 22.
Dovish Fed expectations keep USD depressed.
Political tensions over Fed independence pressure the Dollar.
Escalating conflicts in Ukraine and Gaza fuel safe-haven demand.
Traders await US macro data, particularly Friday’s NFP report.
Conclusion
Gold’s rally to a four-month peak underscores the perfect storm of factors driving the precious metal higher dovish Fed expectations, USD weakness, and intensifying geopolitical tensions. With the Fed widely expected to cut rates in September, markets are bracing for potential volatility as US labor market data later this week could shape the policy outlook. Until then, safe-haven demand is likely to keep the XAUUSD bulls firmly in control.
