- Gold price drifts lower after rising to over a one-month peak during the Asian session.
- A modest USD bounce and a positive risk tone seem to undermine the precious metal.
- The uncertainty over the Fed’s rate-cut path warrants some caution for the USD bulls.
Gold price (XAU/USD) retains negative bias through the first half of the European session, though it lacks follow-through selling and remains close to the highest level since June 16, touched earlier this Wednesday. The optimism over a US-Japan trade deal remains supportive of the upbeat market mood. This, along with a modest US Dollar (USD) uptick, is seen undermining the commodity. However, a combination of factors acts as a tailwind for the precious metal and warrants some caution.
Investors remain uncertain about the likely timing and pace of interest rate cuts by the Federal Reserve (Fed). Adding to this, worries about the Fed’s independence fail to assist the USD to register any meaningful recovery from a nearly two-week low touched on Tuesday and act as a tailwind for the non-yielding Gold price. Hence, it will be prudent to wait for strong follow-through selling before confirming that the XAU/USD pair has topped out and positioning for a further near-term depreciation.
Daily Digest Market Movers: Gold price bears seem non-committed as Fed uncertainty undermines the USD
- US President Donald Trump announced in a social media post that his administration had completed a massive trade deal with Japan. Trump added that Japan will pay reciprocal tariffs of 15% and will open its country to trade, including cars and trucks, rice, and certain other agricultural products.
- The positive developments trigger a fresh wave of the global risk-on trade and dent demand for traditional safe-haven assets. Apart from this, a modest US Dollar bounce from a two-week low touched on Tuesday drives some flows away from the Gold price during the Asian session on Wednesday.
- Meanwhile, Trump continues to push for lower interest rates and has publicly called for Federal Reserve Chair Jerome Powell’s resignation. Moreover, US Treasury Secretary Scott Bessent renewed calls for a sweeping internal review of the Fed’s operations, fueling worries about the central bank’s independence.
- This, in turn, is holding back the USD bulls from placing aggressive bets. Furthermore, the uncertainty over the eventual state of tariffs globally has been a huge overhang for traders, which could further act as a tailwind for the non-yielding yellow metal and help limit any meaningful corrective decline.
- Traders now look forward to the release of the US Existing Home Sales data for some impetus later during the North American session. The focus, however, will remain glued to the release of the global flash PMIs, which will influence the global risk sentiment and provide a fresh impetus to the XAU/USD pair.
Gold price bulls have the upper hand as this week’s breakout through a short-term trading range remains in play
From a technical perspective, this week’s breakout through the $3,368-3,370 horizontal barrier and a subsequent move beyond the $3,400 mark on Tuesday was seen as a key trigger for bullish traders. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and are still away from being in the oversold zone. Hence, any further decline might still be seen as a buying opportunity near the $3,400 round figure. Some follow-through selling, however, might negate the positive outlook and drag the Gold price back towards the $3,370 resistance-turned-support.
On the flip side, the Asian session peak, around the $3,438-3,439 region, now seems to act as an immediate hurdle ahead of the July swing high, around the $3,451-3,452 zone. A sustained strength beyond the latter should pave the way for a move towards retesting the all-time peak, around the $3,500 psychological mark touched in April.
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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