- Gold price struggles to capitalize on the Asian session uptick to a two-month high.
- A positive risk tone undermines the XAU/USD, though the downside seems limited.
- Trade uncertainties and geopolitical risks lend support ahead of the FOMC meeting.
Gold price (XAU/USD) trades with a mild negative bias below its highest level since April 22, touched during the Asian session this Monday, though it lacks bearish conviction. A generally positive tone around the Asian equity markets is seen as a key factor undermining the bullion. However, persistent trade-related uncertainties and rising geopolitical tensions in the Middle East might continue to offer support to the safe-haven precious metal.
Meanwhile, bets that the Federal Reserve (Fed) will lower borrowing costs further in 2025 keep the US Dollar (USD) depressed near a three-year low touched on Friday, and should contribute to limiting losses for the non-yielding Gold price. Traders also seem reluctant and might opt to wait for the outcome of a two-day FOMC policy meeting on Wednesday, which will influence the USD and provide a fresh directional impetus to the XAU/USD pair.
Daily Digest Market Movers: Bulls remain on the defensive despite a combination of supporting factors
- Iran launched a new barrage of missiles and drones at Israel on Sunday evening, while the latter said that it began another series of strikes on military targets across Iran. Deadly strikes between Israel and Iran continued into Monday, with Israel vowing to intensify its operation against Iran.
- This comes on top of persistent uncertainty surrounding US President Donald Trump’s trade policies and lifts the safe-haven Gold price to a nearly two-month peak during the Asian session on Monday. A combination of factors, however, keeps a lid on any further gains for the commodity.
- The markets, so far, have reacted little to the heightened military conflict between Israel and Iran, which is evident from a positive tone around the Asian equities. Adding to this, a modest US Dollar uptick contributes to capping the precious metal and prompts some intraday selling.
- Any meaningful USD upside, however, seems elusive as traders might opt to wait for more cues about the Federal Reserve’s rate cut path before placing fresh directional bets. Hence, the focus remains on the crucial FOMC policy decision, scheduled to be announced on Wednesday.
- The US central bank is widely expected to keep interest rates unchanged. However, traders have been pricing in the possibility that the Fed would change its stance that interest rates will remain unchanged in the near term amid softer US inflation and signs of a cooling economy.
- The outlook will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the XAU/USD. In the meantime, the risk of a further escalation of geopolitical tensions in the Middle East might continue to act as a tailwind for the yellow metal.
Gold price is likely to attract fresh buyers and find decent support near the $3,400 round figuere
From a technical perspective, Friday’s breakout through the $3,400 mark, the formation of an ascending trend channel on short-term charts, and positive oscillators on the daily chart favor the XAU/USD bulls. Hence, any further corrective slide could be seen as a buying opportunity and remain limited. Some follow-through selling below the $3,400 mark, however, should pave the way for deeper losses toward the $3,360 area, representing the lower end of the ascending channel. A convincing break below the latter would negate the constructive outlook and shift the near-term bias in favor of bearish traders.
On the flip side, momentum beyond the Asian session peak, around the $3,452-3,453 area, should allow the Gold price to aim towards challenging the all-time peak, around the $3,500 psychological mark touched in April. The said handle coincides with the top boundary of the ascending channel, which, if cleared decisively, will be seen as a fresh trigger for bullish traders and pave the way for an extension of the recent well-established uptrend.
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.
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