Gold weakens as USD uptick and risk-on mood dominate ahead of FOMC Minutes
- Gold drifts lower for the second straight day amid a combination of negative factors.
- The USD preserves the overnight gains and undermines demand for the commodity.
- A positive risk tone also weighs on the XAU/USD pair as trades await FOMC Minutes.
Gold (XAU/USD) attracts some follow-through selling for the second straight day and slides to the $4,922 area during the Asian session on Tuesday amid thin liquidity on the back of the Lunar New Year holidays in China. The commodity, however, lacks bearish conviction and holds above last week's swing low as traders await more cues about the US Federal Reserve's (Fed) rate-cut path before placing fresh directional bets.
Hence, the focus will remain glued to the release of the FOMC Minutes on Wednesday. Moreover, the US Personal Consumption Expenditure (PCE) Price Index, due on Friday, will play a key role in influencing the near-term US Dollar (USD) price dynamics. This, in turn, would provide a fresh impetus to the non-yielding Gold during the latter part of the week. In the meantime, the USD is seen struggling to lure buyers amid dovish Fed expectations.
In fact, traders priced in higher odds that the US central bank will lower borrowing costs in June and cut interest rates more than two times this year. This, in turn, fails to assist the USD in attracting any meaningful buyers and should continue to act as a tailwind for the Gold. Apart from this, nervousness ahead of the second round of US-Iran nuclear talks, aimed at de-escalating tensions, offers support to the safe-haven previous metal and limits losses.
However, the prevailing risk-on environment – as depicted by a generally positive tone around the equity markets – might keep a lid on any attempted recovery in the Gold price. Traders now look to the release of the Empire State Manufacturing Index, which, along with Fed speak, could drive the commodity. Nevertheless, the mixed fundamental backdrop warrants some caution before placing directional bets around the XAU/USD pair.
XAU/USD 1-hour chart
Gold seems vulnerable while below the 100-hour SMA pivotal resistance
The overnight failure to build on the momentum beyond the downward sloping 100-hour Simple Moving Average (SMA) and the subsequent fall favor bearish traders. The Moving Average Convergence Divergence (MACD) line stays below its Signal line and under the zero mark, while the negative histogram narrows, hinting at fading downside momentum. The Relative Strength Index stands at 40.75 (neutral-to-bearish), ticking up from prior readings and signaling early stabilization.
Below the falling average, sellers retain the initiative and risk skews to the downside. A decisive close back above the 100-SMA would be needed to shift tone, as a sustained MACD turn higher and an RSI move through 50 could open a recovery phase. Until those signals materialize, rebounds would face pressure, and the broader setup would continue to favor tests of lower levels.
(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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