- Gold price regains positive traction following the previous day’s range-bound price moves.
- Trade-related uncertainties and geopolitical risks underpin the safe-haven precious metal.
- A modest USD strength might cap the XAU/USD ahead of the critical US inflation figures.
Gold price (XAU/USD) seems to struggle to capitalize on modest intraday gains and remains below the overnight swing high as traders opt to wait for the release of the US Consumer Price Index (CPI). The crucial consumer inflation data will play a key role in influencing market expectations about the Federal Reserve’s (Fed) rate-cut path, which, in turn, will drive the US Dollar (USD) and provide a fresh directional impetus to the non-yielding Gold price.
In the meantime, the USD attracts some buyers amid some repositioning trade ahead of the key data risk. This, along with the latest optimism over a positive outcome from the US-China trade talks, acts as a headwind for the safe-haven Gold price. The USD bulls, however, seem reluctant amid the growing acceptance that the Fed will cut rates further in 2025. Apart from this, geopolitical risks remain supportive of the bid tone surrounding the XAU/USD pair.
Daily Digest Market Movers: Gold price bulls seem reluctant amid firmer USD and trade optimism, ahead of US CPI
- US President Donald Trump received a favorable update on Tuesday as a federal appeals court ruled that his “Liberation Day” tariffs can temporarily stay in effect. Last month, the US Court of International Trade blocked the implementation of Trump’s tariffs, saying that the method used to enact them was unlawful.
- The latest development comes as the US and China, following two days of talks in London, agreed on a framework to implement the Geneva Consensus and ease trade tensions. US Commerce Secretary Howard Lutnick indicated the deal should resolve issues between the two countries surrounding rare earths and magnets.
- Russia continues with its strikes on Ukraine’s northeastern city of Kharkiv after rejecting an unconditional ceasefire earlier this month. Moreover, Israel continues to bombard the Gaza Strip relentlessly, keeping geopolitical risks in play and driving safe-haven flows toward the Gold price on Wednesday.
- The stronger-than-expected US Nonfarm Payrolls report released last Friday pointed to a still resilient labor market, forcing investors to scale back their bets for an imminent interest rate cut by the Federal Reserve. Markets, however, are still pricing in the possibility of two rate reductions by the end of this year.
- The US Dollar, however, remains confined to a familiar range, just above its lowest level since April 22, which it touched last week, as investors await more cues about the Fed’s rate-cut path. Hence, the focus remains glued to the release of the US Consumer Price Index (CPI) report later during the North American session.
- This will be followed by the US Producer Price Index (PPI) on Thursday, which will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the commodity. In the meantime, the supportive fundamental backdrop should act as a tailwind for the XAU/USD.
Gold price remains below the $3,352-3,353 pivotal resistance; constructive technical setup favors bullish traders
From a technical perspective, the overnight bounce from the vicinity of the 200-period Simple Moving Average (SMA) on the 4-hour chart and the subsequent move up favor the XAU/USD bulls. Adding to this, oscillators on the said chart have again started gaining positive traction and back the case for further intraday move-up. A further strength beyond the $3,352-3,353 immediate hurdle will reaffirm the bullish outlook and lift the Gold price towards the $3,377-3,378 intermediate hurdle en route to the $3,400 round figure.
On the flip side, weakness back below the $3,323-3,322 area might continue to attract some buyers and find decent support near the $3,300 round figure. Some follow-through selling, leading to a subsequent fall below the $3,288-3,287 zone (200-period SMA on the 4-hour chart), might shift the bias in favor of bearish traders and drag the Gold price to the monthly swing low, around the $3,245 region. The XAU/USD could extend the corrective decline further and eventually drop to the $3,200 neighborhood.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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