- Gold attracts some sellers following an intraday rise to a fresh multi-month high on Tuesday.
- Fed rate-hike bets amid inflation risk and the Middle East crisis underpin the safe-haven USD.
- Traders now look to the US PCE data and Fed Chair Kevin Warsh’s speech for fresh impetus.
Gold (XAU/USD) stabilizes below $4,650 heading into the European session, stalling its intraday retracement slide from the $4,700 neighborhood, or the highest since May 14, touched earlier this Tuesday. Despite tamer July US inflation data, traders are still pricing in around a 75% chance that the US central bank will raise borrowing costs by the end of this year amid inflation risks stemming from volatile crude oil prices. Furthermore, persistent geopolitical uncertainties help the safe-haven US Dollar (USD) build on its recovery from a three-month low, prompting some profit-taking around the precious metal.
In the latest developments surrounding the Middle East crisis, Treasury Secretary Scott Bessent announced Monday that the US is launching a campaign to isolate Iran from the global economy. Bessent also warned that any country conducting business with Iran risks facing US sanctions. Iran's Supreme National Security Council secretary, Mohsen Rezaei, had said that the Islamic Republic would halt all oil exports through the Strait of Hormuz and anywhere else in the Persian Gulf if economic war continues. This keeps geopolitical risk premium in play and should support the Greenback.
Meanwhile, the initial downward push on US bond yields following the Treasury Department's expanded buyback strategy was short-lived amid concerns over the growing US national debt, which crossed $40 trillion. This has revived the so-called "debasement trade", which might continue to underpin demand for bullion as an alternative store of value. Traders might also refrain from placing aggressive bullish bets on the USD and opt to wait for more cues about the Fed's policy path amid shifting expectations toward an on-hold decision at the upcoming September 15-16 FOMC meeting.
Hence, the market focus will remain glued to the release of the US Personal Consumption Expenditures (PCE) Price Index on Wednesday. Adding to this, Fed Chair Kevin Warsh’s keynote address at the annual Jackson Hole Symposium on Friday will be scrutinized for more interest rate cues, which, in turn, will influence the USD and provide some meaningful impetus to the Gold price. In the meantime, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through selling before confirming that the XAU/USD pair has topped out and positioning for a further depreciation.
XAU/USD daily chart
Technical Analysis
The recent breakout through a confluence hurdle near the $4,500 psychological mark – comprising a technically significant 200-day Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the March-June decline – favors XAU/USD bulls. Moreover, the Moving Average Convergence Divergence (MACD) stays positive above the zero line, hinting that buying pressure is still dominant even as conditions look stretched.
Meanwhile, the Relative Strength Index (RSI) hovers in overbought territory near 71 and fails to assist the Gold price in building on intraday gains beyond the 50% retracement level. Nevertheless, momentum indicators remain constructive, suggesting that any corrective slide is more likely to be bought into and remain limited. Initial support is seen at the 200-day SMA and the 38.2% retracement confluence, ahead of $4,500, while a deeper pullback would expose the 23.6% Fibo. level around $4,294 as a more distant floor.
On the topside, immediate resistance emerges at the 50.0% retracement around $4,680.86, with additional hurdles at the 61.8% retracement near $4,853.70 and then the 78.6% level at about $5,099.77 ahead of the prior swing high around $5,413.22.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.