- 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) sticks to modest intraday gains heading into the European session on Wednesday and for now, seems to have snapped a two-day losing streak to sub-$3,300 levels, or over a two-week low touched the previous day. 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 keeps the door open for a potential rate reduction as soon as next month, which, in turn, is seen undermining the US Dollar (USD) and supporting the non-yielding yellow metal.
Meanwhile, an Israeli attack on Tehran and an Iranian missile strike following the ceasefire announcement on Tuesday raised doubts over the durability of the truce. This keeps the geopolitical risk premium in play and turns out to be another factor acting as a tailwind for the Gold price. However, a generally positive tone around the equity markets is holding back the XAU/USD bulls from placing fresh bets. This, in turn, makes it prudent to wait for strong follow-through buying before positioning for any further gains ahead of key US macro releases scheduled during the latter half of the week.
Daily Digest Market Movers: Gold price retains positive bias as Fed rate cut bets undermine the USD
- 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 seems vulnerable while below ascending channel support breakpoint near $3,370 area
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.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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