Gold prices plunge on heavy profit-booking, but near-term strength remains intact

• Gold price slides below $2,400 after profit-booking but remains supported by multiple tailwinds.
• The Fed is anticipated to cut interest rates by over 100 bps this year.
• The US Dollar approaches its March low, while bond yields hit fresh annual lows.

Gold price (XAU/USD) shows significant weakness despite escalating geopolitical tensions and growing fears of a global economic slowdown. Middle East conflicts have intensified, with Iran-backed Hezbollah launching missiles on Israel in retaliation for the assassination of Hamas leader Ismail Haniyeh by an Israeli airstrike in Tehran. Historically, such tensions increase Gold’s appeal as a safe-haven asset.

The global demand environment has worsened due to higher interest rates from central banks. China, the world’s second-largest economy, faces vulnerability from poor domestic and international demand, with the Caixin Manufacturing PMI unexpectedly contracting to 49.8 in July. The Eurozone is also struggling with demand issues, leading the German administration to provide tax relief. Meanwhile, slowing US economic growth has heightened fears of a broader economic slowdown.

The 10-year US Treasury yields have dropped to 3.67% amid strong speculation that the Federal Reserve will cut rates in September. Lower yields on interest-bearing assets diminish the opportunity cost of holding non-yielding investments like gold. Additionally, the US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, has fallen to its March low of around 102.60.