Gold prices kicked off the week strong, rising more than 2% on Monday to $3,317 as rising geopolitical instability and mixed messages concerning the Federal Reserve’s forthcoming policy decision generated safe haven demand. With the coronavirus epidemic continuing to sting and inflation wreaking havoc in the economy, inflation reports on the positive side of expectations, and strong demand, gold has surpassed the effective price of precious metals so far this year. The XAU/USD rally comes at a time when military conflict concerning Israel is provoking fear and uncertainty and another round of controversy involving comments made by former President Donald Trump about American foreign policy.
Fed Rate Decision in Focus as Political Pressure Mounts
Traders are also turning to the Federal Reserve, which is set to announce its latest interest rate policy on Wednesday, May 7. Trump reignited political pressure on the Fed, calling Chairman Jerome Powell “stiff” and urging the Federal Open Market Committee (FOMC) to cut rates immediately.
Despite the rhetoric, the latest CME FedWatch Tool shows just a 5.2% chance of a rate cut, with 94.6% of analysts expecting no change. Economic data—such as the latest Nonfarm Payrolls and easing in manufacturing and services—suggests the U.S. economy is slowing but not collapsing. This provides Fed Chair Powell with reason to hold rates steady, likely resisting political pressure.
M&A News in Gold Mining Sector Adds Momentum
In industry news Gold Road Resources has agreed to a $3.7 billion takeover by South Africa’s Gold Fields putting an end to a public dispute between them. This represents ongoing consolidation in the mining space and a bullish perspective on the long-term valuations of Gold going forward, adding further tailwinds to the ongoing rally.
Asian and UK markets were closed for public holidays and thins liquidity may have accounted for exaggerated moves to early Monday action in precious metals.
Technical Analysis: Bullion Breaks Key Resistance
Technically, Gold bulls are in control. The XAU/USD pair blasted through the $3,265 R1 resistance level, a strong bullish signal just days ahead of the Fed decision. Immediate resistance now lies near $3,290 (May 1 high) and $3,320 (April 30 high), with a stretch target at $3,337.
On the downside, pivot support is seen at $3,244–$3,245, with further supports at $3,219 and $3,197 for intraday pullbacks. If the Fed stays hawkish or geopolitical headlines fade, these levels could be tested. However, continued tension would likely sustain the upside.
All Eyes on Fed as Gold Reclaims Safe-Haven Crown
As should be evident, the recent rally in the gold price is the result of a “perfect storm” of reasons – Trump, international geopolitical tensions, a rising conflict in the Middle East, and uncertainty regarding Federal Reserve policy. Increased global tensions, traders becoming increasingly inept at identifying political clarity, and a rising price of gold are combining to reinforce gold’s long-denied ‘safe haven’ status.
With the FOMC decision looming in just a few days, volatility is likely to persist in the meantime. If Powell continues to endorse ‘data dependent’ policy and pushes back against anticipated rate cuts, gold price will likely continue to consolidate. Conversely, the new cycle of international geopolitical events (or even surprises) could result in XAU/USD surging past $3,320 in the next few days
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