- Gold price attracted some dip-buyers during the Asian session, though it lacks follow-through.
- Fed rate cut bets keep the USD bulls on the defensive and lend support to the XAU/USD pair.
- Geopolitical risks also benefit the commodity ahead of the Fed meeting starting this Tuesday.
Gold price (XAU/USD) reverses an Asian session dip to the $3,374-3,373 area and currently trades near the top end of its daily range, just below the $3,400 round figure. The US Dollar (USD) continues with its struggle to attract any meaningful buyers amid the growing acceptance that the Federal Reserve (Fed) will cut interest rates further in 2025. This, along with rising geopolitical tensions in the Middle East, acts as a tailwind for the safe-haven precious metal.
Any meaningful appreciation for the XAU/USD pair, however, seems limited as traders might refrain from placing aggressive bets ahead of the crucial Fed monetary policy update on Wednesday. Investors will look for cues about the Fed’s rate-cut path, which, in turn, will influence the near-term USD price dynamics and provide a fresh impetus to the non-yielding Gold price. In the meantime, US Retail Sales could produce short-term opportunities on Tuesday.
Daily Digest Market Movers: Gold price draws support from Fed rate cut bets, rising geopolitical tension
- Israel struck Iran’s state-run television station on Monday, while Iran said that it is preparing for the largest and the most intense missile attack in history on Israeli soil. US President Donald Trump left the G7 Summit a day early because of the Middle East situation and has requested the National Security Council to convene in the Situation Room.
- Three tankers are reportedly on fire in the Gulf of Oman near the Strait of Hormuz, raising concerns of a possible repeat of the 2019 attacks attributed to Iran. This raises the risk of a further escalation of geopolitical tensions in the Middle East and assists the safe-haven Gold price to gain some positive traction during the Asian session on Tuesday.
- The US Dollar edges higher amid repositioning trades ahead of the crucial two-day FOMC policy meeting starting later today and acts as a headwind for the precious metal. The Federal Reserve is widely expected to maintain the status quo and keep its benchmark rate unchanged amid concern that Trump’s tariffs could push up consumer prices.
- Meanwhile, the USD uptick lacks bullish conviction on the back of rising bets that the Fed will resume its rate-cutting cycle in September. Hence, the accompanying policy statement and Fed Chair Jerome Powell’s comments during the post-meeting press conference will be scrutinized closely for cues about the future rate-cut path.
- This, in turn, will help in determining the next leg of a directional move for the USD and the non-yielding yellow metal. In the meantime, persistent trade-related uncertainties and geopolitical risks stemming from the worsening Iran-Israel conflict might continue to act as a tailwind for the safe-haven commodity.
Gold price bulls need to wait for a sustained move above the $3,400 mark before positioning for further gains
From a technical perspective, the formation of an ascending channel points to a well-established short-term uptrend. Adding to this, positive oscillators on the daily chart back the case for the emergence of dip-buying, which should help limit the downside for the Gold price near the $3,340-3,335 area, or the lower boundary of the trend channel. A convincing break below the latter would negate any near-term positive outlook and shift the bias in favor of bearish traders.
On the flip side, the $3,400 round figure now seems to have emerged as an immediate hurdle, above which the Gold price could climb to the $3,434-3,435 region. Some follow-through buying, leading to a subsequent strength beyond the $3,451-3,452 area, or the multi-week top touched on Monday, should allow the Gold price to challenge the all-time peak, around the $3,500 psychological mark touched in April. The said handle coincides with the ascending channel barrier, which if cleared would pave the way for a further appreciating move.
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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