Gold drops to fresh low since late March on firmer USD and hawkish Fed bets
- Gold attracts some follow-through selling on Wednesday amid a broadly firmer US Dollar.
- Geopolitical uncertainties and rising Fed rate hike bets keep the USD near a six-week top.
- Traders now look to FOMC Minutes for more cues about the US central bank’s policy path.
Gold (XAU/USD) drops to a fresh low since March 30 following an Asian session uptick to levels just above the $4,500 mark on Wednesday, and seems vulnerable to a further decline amid a bullish US Dollar (USD). Investors remain skeptical about a potential US-Iran peace deal, which, along with inflation fears and hawkish US Federal Reserve (Fed) expectations, assists the USD to stand firm near a six-week high and weighs on the commodity.
US President Donald Trump said on Tuesday that America may need to strike Iran again if a deal is not reached and that he had been an hour away from ordering an attack before postponing it following a request from three Gulf leaders. Meanwhile, Vice President JD Vance said the US and Iran have made a lot of progress in their talks, and neither side wants to see a resumption of the military campaign. However, doubts over a long-elusive diplomatic agreement to end the Iran conflict remain amid major disagreements over Tehran's nuclear program and the Strait of Hormuz. This continues to underpin the Greenback's reserve currency status, which is seen as a key factor acting as a headwind for the Gold price.
Meanwhile, the uncertainty fueled by the US-Iran stalemate keeps Crude Oil prices elevated near the monthly peak, fueling inflationary concerns and lifting Fed rate hike bets. According to the CME Group's FedWatch Tool, traders are now pricing in over a 55% chance that the US central bank will raise borrowing costs by at least 25 basis points (bps) in 2026. The outlook was reaffirmed by comments from Philadelphia Fed President Anna Paulson, who said that an appropriate rate increase is possible if growth exceeds potential or inflation threats arise. This led to the recent sharp increase in US Treasury bond yields, which further lends support to the buck and exerts some pressure on the non-yielding Gold price.
The USD bulls, however, seem hesitant and keenly await the release of FOMC Minutes, due later in the North American session, for more cues about the Fed's policy path. This, along with further developments surrounding the Middle East crisis, could provide some impetus to the precious metal. Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of the USD bulls and suggests that the path of least resistance for the Gold price is to the downside. Hence, any recovery attempt is more likely to get sold into and runs the risk of fizzling out rather quickly.
XAU/USD daily chart
Gold seems poised to extend the breakdown momentum below $4,500
From a technical perspective, acceptance below the $4,500 psychological mark could be seen as a fresh trigger for bearish traders and backs the case for further losses. Moreover, momentum indicators are soft, with the Relative Strength Index (RSI) hovering in the mid-30s and the Moving Average Convergence Divergence (MACD) in negative territory.
This hints that upside traction is fading even as price remains underpinned by long-term trend support near the 200-day Simple Moving Average (SMA) at roughly $4,363.73. A decisive break below this moving average would expose a deeper correction, while holding above it would allow XAU/USD to consolidate its broader uptrend despite the presently weak momentum backdrop.
(The technical analysis of this story was written with the help of an AI tool.)
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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