Gold rallies to two-week high as USD softens on Iran deal hopes, receding Fed hike bets

• Gold gains strong positive traction on Wednesday as US-Iran peace deal hopes weigh on the USD.

• Weak oil prices ease inflation fears and temper Fed hike bets, further benefiting the yellow metal.

• The technical setup seems to have shifted in favor of bulls and backs the case for additional gains.

Gold (XAU/USD) attracts buyers for the second consecutive day and surges past the $4,100 mark to hit a nearly two-week high during the Asian session on Wednesday. The latest optimism over a potential US-Iran deal and the reopening of the Strait of Hormuz, along with receding US Federal Reserve (Fed) rate-hike bets, prompts some follow-through US Dollar (USD) selling and benefits the commodity.

Despite mixed signals, investors remain hopeful about a diplomatic resolution to end the five-month-old US-Iran war. In fact, US Treasury Secretary Scott Bessent said that the US could reach a deal with Iran to reopen the Strait of Hormuz by Wednesday and move toward a more normalized position in this conflict. Adding to this, Axios, citing sources, reported that the US, Iran, and Oman are closing in on an interim agreement to reopen the strategic waterway. Furthermore, the OPEC+ decision on Sunday to increase production from September helps ease supply concerns and dragging crude oil prices to a fresh low since June 13. This, in turn, alleviates inflation concerns and hawkish Fed expectations, which are seen exerting pressure on the USD and supporting the non-yielding Gold.

Traders, however, are still pricing in a greater chance that the US central bank will raise borrowing costs by the end of this year amid signs that the US labor market is beginning to find its footing. The US Job Openings and Labor Turnover Survey (JOLTS) released on Tuesday by the Bureau of Labor Statistics showed that the number of job openings edged lower to 7.36 million but remained above levels seen last year. Adding to this, Kansas City Fed President Jeff Schmid and Philadelphia Fed President Anna Paulson backed the case for tighter monetary policy and higher interest rates to fight inflation. This might hold back USD bears from placing aggressive bets as the focus remains on the official jobs data – popularly known as the Nonfarm Payrolls (NFP) report on Friday.

In the meantime, Wednesday's US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI – will be watched for short-term opportunities later during the North American session. Apart from this, fresh developments surrounding the Middle East crisis should provide some impetus to the USD and the Gold price. The aforementioned fundamental backdrop, meanwhile, seems tilted in favor of XAU/USD bulls and supports prospects for a further intraday appreciating move.

XAU/USD 4-hour chart

Technical Analysis: Gold bulls look to build on intraday breakout above 200-EMA on H4

From a technical perspective, an intraday breakout through the 200-period Exponential Moving Average (EMA) hurdle on the 4-hour chart validates the positive outlook. Adding to this, the Relative Strength Index around 65 suggests firm bullish momentum, while the Moving Average Convergence Divergence (MACD) histogram remains positive, hinting that buyers still retain control in the short term.