Gold price struggles to lure buyers as easing Middle East tensions offsets weaker USD
- Gold price edges higher as Fed rate cut bets keep the USD bulls on the defensive.
- Doubts over the durability of the Israel-Iran ceasefire also support the commodity.
- Traders look forward to this week’s important US macro data for a fresh impetus.
Gold price (XAU/USD) is trading higher during the Asian session on Wednesday and looking to build on the previous day's modest bounce from sub-$3,300 levels, or over a two-week low. Federal Reserve (Fed) Chair Jerome Powell maintained his wait-and-see rate policy, though he said that lower inflation and weaker labor hiring could lead to an earlier rate cut. This comes on top of similar comments from Fed officials in recent days and keeps the door open for a potential rate reduction as soon as next month. The resultant fall in the US Treasury bond yields keeps the US Dollar (USD) depressed near a one-week low and lends some support to the non-yielding yellow metal.
The XAU/USD pair, for now, seems to have snapped a two-day losing streak, though the uptick lacks bullish conviction as the Israel-Iran ceasefire optimism acts as a headwind for traditional safe-haven assets. However, an Israeli attack on Tehran and an Iranian missile strike raised doubts over the durability of the truce. This keeps geopolitical risk in play, which, along with the supportive fundamental backdrop, supports prospects for a further appreciating move for the Gold price. Traders now look to Fed Chair Jerome Powell's second day of congressional testimony for some impetus ahead of other important US macro releases scheduled during the latter half of the week.
Daily Digest Market Movers: Gold price draws support from a weaker USD, though it lacks bullish conviction
- Federal Reserve Chair Jerome Powell, in his prepared remarks for the Semiannual Monetary Policy Report to Congress, said that inflation could start rising soon on the back of higher tariffs and that the central bank was in no rush to ease borrowing costs. Powell added that many paths are possible for monetary policy and that lower inflation and weaker labor hiring could lead to an earlier rate cut.
- Traders now seem to have fully priced in at least 50 basis points of Fed rate reductions by year-end and also see a roughly 20% probability of a rate cut at the July meeting. The US Dollar (USD) languishes near a one-week low touched on Tuesday on the back of dovish Fed expectations and supports the non-yielding Gold price on Wednesday following the previous day's slide to over a two-week low.
- US President Donald Trump criticized both Israel and Iran for breaching a complete ceasefire deal shortly after announcing it. Moreover, media reports stated that recent US airstrikes on Iran’s nuclear facilities likely did not destroy the core components, but merely delayed Tehran’s program by a few months. Trump, however, reiterated that Iran’s nuclear sites were completely destroyed.
- Nevertheless, the ceasefire between Israel and Iran appears to be holding for now, with both sides claiming victory in the war and warning they were ready to renew hostilities if the other attacks. This keeps the geopolitical risk premium in play and should continue to offer support to the safe-haven Gold price ahead of important US macro releases scheduled during the latter half of the week.
- The final Q1 GDP print, along with Durable Goods Orders and the usual Weekly Initial Jobless Claims data, will be published on Thursday. The focus, however, will remain glued to the US Personal Consumption Expenditures (PCE) Price Index on Friday, which will play a key role in influencing market expectations about the Fed's rate-cut path. This, in turn, will drive the USD and the XAU/USD pair.
Gold price could attract fresh sellers at higher levels; ascending trend-channel breakdown remains in play
From a technical perspective, the overnight downfall confirmed a breakdown through a short-term ascending channel and favored bearish traders. Moreover, oscillators on daily/4-hour charts have started gaining negative traction and suggest that the path of least resistance for the Gold price is to the downside. Hence, any subsequent move up could be seen as a selling opportunity and remain capped near the trend-channel support breakpoint, around the $3,368-3,370 region. A sustained strength beyond, however, could allow the commodity to reclaim the $3,400 round figure.
On the flip side, bearish traders might now await acceptance below the $3,300 mark before placing fresh bets and positioning for a fall toward the $3,245 region. The downward trajectory could extend further and eventually drag the Gold price to the $3,210-$3,200 horizontal support en route to the $3,175 area.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.