- Gold price continues to attract safe-haven flows amid rising geopolitical tensions.
- The intraday move up seems unaffected by the emergence of some USD buying.
- Traders keenly await the key two-day FOMC policy meeting starting this Tuesday.
Gold price (XAU/USD) trims a part of its strong intraday gains to a nearly two-week high touched during the Asian session on Tuesday and currently trades around the $3,360 area, still up for the second consecutive day. The recent US macro data helped ease concerns about a recession and lend some support to the US Dollar (USD). Apart from this, signs of easing US-China trade tensions act as a headwind for the precious metal as traders opt to move to the sidelines ahead of the crucial two-day FOMC policy meeting.
Heading into the key central bank event risk, US President Donald Trump’s erratic trade policies keep investors on edge. Apart from this, persistent geopolitical risks stemming from the protracted Russia-Ukraine war and conflicts in the Middle East might continue to act as a tailwind for the safe-haven Gold price. This, in turn, warrants some caution for bearish traders and before positioning for any meaningful downside. Hence, any subsequent slide might still be seen as a buying opportunity and remain limited.
Daily Digest Market Movers: Gold price bulls turn cautious amid signs of easing US-China tensions, ahead of FOMC meeting
- Speaking to reporters aboard Air Force One on Sunday, US President Donald Trump hinted at possible trade agreements with certain countries as early as this week, though he did not name any specific countries. Trump had signaled earlier that he is open to lowering massive tariffs imposed on China.
- Meanwhile, China’s Commerce Ministry said last Friday that it was evaluating the possibility of trade talks with the US. This, in turn, adds to the optimism over a possible easing of the tit-for-tat tariff war between the world’s two largest economies and remains supportive of a generally positive risk tone.
- The Institute for Supply Management (ISM) survey showed on Monday that the growth in the US services sector picked up in April. In fact, the ISM Services PMI rose to 51.6 compared to 50.8 in March and 50.6 estimated. This comes on top of Friday’s upbeat US jobs data and eases fears of a US recession.
- This assists the US Dollar to gain some positive traction following a two-day losing streak. The Gold price, however, continues to attract safe-haven flows amid uncertainty over Trump’s erratic trade policies and rising geopolitical risks. Trump on Sunday announced a 100% tariff on movies produced overseas.
- On the geopolitical front, Russian officials said that Ukraine launched drones at Moscow for the second night in a row, forcing the closure of the capital’s three major airports. Moreover, Ukrainian forces were trying to advance in Kursk and attacked a power substation in Russia’s western Kursk region.
- Furthermore, Israel, reportedly in coordination with the US, launched airstrikes on Yemen’s Hodeidah port in response to Houthi rebel’s ballistic missile attack that hit Ben Gurion International Airport on Sunday. This, in turn, provides an additional boost to the commodity on Tuesday.
- Traders now look forward to the highly-anticipated two-day FOMC meeting starting this Tuesday amid reduced bets for a rate cut in June. Hence, the accompanying policy statement and Federal Reserve Chair Jerome Powell’s comments on Wednesday will be scrutinized for cues about the rate-cut path.
Gold price stalls intraday move up near 61.8% Fibo. hurdle; downside seems limited amid constructive technical setup
From a technical perspective, the strong intraday move higher lifts the Gold price beyond the $3,350 hurdle, which coincided with the 50% Fibonacci retracement level of the recent pullback from the all-time peak. This, along with positive oscillators on the daily chart, suggests that the path of least resistance for the commodity remains to the upside. Some follow-through buying beyond the 61.8% Fibo. level, around the $3,385 region, will reaffirm the positive bias and lift the XAU/USD beyond the $3,400 mark, towards the next relevant barrier near the $3,425 zone. The subsequent move up should allow bulls to make a fresh attempt to conquer the $3,500 psychological mark.
On the flip side, the $3,350 area now seems to protect the immediate downside ahead of the daily low, around the $3,325 zone. This is followed by the $3,300 mark, which if broken decisively might prompt some technical selling and drag the Gold price to the $3,275-3,270 intermediate support en route to the $3,245-3,244 region. A convincing break below the latter could make the XAU/USD vulnerable to accelerate the slide back towards challenging the $3,200 mark, or over a two-week low touched last Thursday.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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