Gold steadies around $4,600; bears have the upper hand ahead of Fed decision
- Gold struggles to gain any meaningful traction as traders seem hesitant ahead of the Fed decision.
- The US-Iran stalemate underpins the safe-haven US Dollar and caps the upside for the commodity.
- The technical setup favors the XAU/USD bears and backs the case for a further depreciating move.
Gold (XAU/USD) is seen consolidating around the $4,600 mark during the Asian session as traders keenly await the outcome of a two-day FOMC policy meeting, due later this Wednesday. The key focus will be on the post-meeting press conference, where comments from the outgoing US Federal Reserve (Fed) Chair Jerome Powell will be scrutinized for cues about the future policy path. The outlook, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide some meaningful impetus to the non-yielding yellow metal.
Heading into the key central bank event risk, the uncertainty over the second round of US-Iran peace talks continues to underpin the USD's reserve currency status and keep the Gold price close to a three-week low, touched on Tuesday. In fact, hopes for diplomatic efforts to end the Iran war receded over the weekend after US President Donald Trump canceled his special envoy's planned visit to Pakistan. Furthermore, media reports suggest that Trump is dissatisfied with Iran's new proposal on ending the conflict and reopening the Strait of Hormuz, while setting aside discussions on the nuclear program.
Meanwhile, shipping traffic through the strategic waterway has recently seen a sharp decline due to Iran's restrictions on movements and the US naval blockade of Iranian ports. This, along with the US-Iran stalemate, remains supportive of elevated Crude Oil prices and revives inflationary concerns. This might prompt major central banks, including the US Fed, to adopt a more hawkish stance and turn out to be another factor capping the upside for the Gold price. Hence, any attempted recovery move might still be seen as an opportunity for bearish traders and runs the risk of fizzling out rather quickly.
XAU/USD 1-hour chart
Gold might struggle to register any recovery amid bearish technical setup
Against the backdrop of the recent failure near the 200-hour Exponential Moving Average (EMA), the overnight break below the $4,670-4,665 horizontal support was seen as a key trigger for the XAU/USD bears. Moreover, the Relative Strength Index (RSI) around 40 reflects subdued buying pressure, suggesting that any attempted recovery remains vulnerable while the Gold is capped beneath these overhead levels.
That said, the Moving Average Convergence Divergence (MACD) histogram has turned positive, hinting at a modest recovery attempt. Meanwhile, initial resistance is seen at the horizontal line near $4,668.04, with the 200-period EMA at about $4,703.69 acting as the next, more substantial obstacle that would need to be reclaimed to ease the prevailing bearish pressure. On the downside, weakness below the overnight swing low, around the $4,555, would leave the precious metal exposed to further slippage.
(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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