Gold stalls recovery as Fed uncertainty keeps buyers cautious
- Gold trades lower for a second straight day as the US Dollar holds firm.
- Hawkish Fed expectations and elevated US Treasury yields cap the upside in the non-yielding metal.
- Investors turn their focus to the FOMC meeting minutes due on Wednesday.
Gold (XAU/USD) stalls its recovery and trades on the back foot for a second consecutive day as a steady US Dollar (USD) and doubts over the Federal Reserve's (Fed) interest rate path keep the upside in check.
At the time of writing, XAU/USD is trading around $4,130 during the European trading session on Tuesday.
While the weaker-than-expected June US Nonfarm Payrolls (NFP) report eased near-term Fed rate hike fears and triggered a relief rally in the non-yielding metal from below the $4,000 mark last week, it did little to change the broader hawkish Fed narrative.
Fed Governor Christopher Waller said on Monday that the central bank remains committed to its 2% inflation target, calling it "a credible pledge."
According to the CME FedWatch Tool, traders are pricing in a 75% probability that the US central bank will leave borrowing costs unchanged at this month's meeting. Meanwhile, the odds of a September rate hike have fallen to 58% from 68% a week ago.
Hawkish Fed expectations, elevated US Treasury yields and lingering uncertainty over a broader US-Iran peace agreement continue to support the US Dollar (USD), limiting Gold's upside. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading around 100.95.
Iran's Islamic Revolutionary Guard Corps (IRGC) reportedly attacked a commercial vessel near the Strait of Hormuz on Monday. Meanwhile, Iranian Foreign Minister Abbas Araghchi said negotiations on a final agreement would not begin while threats persist, after US President Donald Trump warned that Washington would either reach a deal with Tehran or "finish the job."
Traders now turn their attention to the Federal Open Market Committee (FOMC) meeting minutes, due on Wednesday, for fresh clues on the monetary policy path in the coming months, which could influence Gold prices.
Meanwhile, the latest CFTC Commitments of Traders (COT) report showed speculative traders increased their bullish bets on Gold in the week ended June 30, with non-commercial net long positions rising to 194K contracts from 181.3K a week earlier.
Technical analysis: XAU/USD rebound loses steam below $4,200
On the daily chart, XAU/USD maintains a bearish bias as it holds below both the 200-day Simple Moving Average (SMA) at $4,489 and the 100-day SMA at $4,619.
Momentum is subdued, with the Relative Strength Index (RSI) hovering near 44, while the Average Directional Index (ADX) around 38 hints at a still-established but not explosive downtrend.
On the topside, initial resistance is seen at $4,200, ahead of the 200-day SMA at $4,489, with the longer-term bearish threshold reinforced by the 100-day SMA at $4,619.
On the downside, the first meaningful support aligns with the horizontal level at $3,950, where a break would likely extend the current corrective phase toward lower psychological floors.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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