- Gold price struggles to lure buyers amid a combination of diverging forces.
- The USD sinks to a multi-year low on Fed independence fears and rate cut bets.
- The optimism surrounding the Israel-Iran truce caps the safe-haven commodity.
Gold price (XAU/USD) struggles to capitalize on the previous day’s modest gains and an Asian session uptick amid mixed cues. US President Donald Trump’s fresh attack fuels concerns about the potential erosion of the US Federal Reserve’s (Fed) independence. Moreover, bets that the US central bank will lower borrowing costs further this year drag the US Dollar (USD) to its lowest level since March 2022, and act as a tailwind for the non-yielding yellow metal.
Meanwhile, the optimism over a ceasefire between Israel and Iran continues to underpin the global risk sentiment. This, in turn, keeps a lid on the safe-haven Gold price and warrants caution for bullish traders. Market players now look to the US macro data, which, along with speeches from FOMC members, could provide a fresh impetus to the bullion. The focus will then shift to the release of the US Personal Consumption and Expenditure (PCE) Price Index on Friday.
Daily Digest Market Movers: Gold price bulls seem reluctant as Israel-Iran optimism offsets weaker USD
- US President Donald Trump escalated his criticism of Federal Reserve Chair Jerome Powell for not cutting rates and said he was considering several candidates to replace him. In fact, Powell reiterated on Wednesday that the central bank is well-positioned to wait to cut interest rates until the inflationary effects of Trump’s wide-ranging tariffs are better known.
- The Trump-Powell standoff comes on top of bets that the Fed would cut interest rates by at least 50 basis points before the end of the year. This, in turn, drags the US Dollar to over a three-year low and assists the non-yielding Gold price to attract some buyers for the second straight day on Thursday, though the intraday uptick seems to lack bullish conviction.
- The fragile truce between Israel and Iran continues to hold, with Trump declaring victory despite the uncertainty regarding the extent of the damage to Iran’s uranium enrichment assets. Nevertheless, the optimism holds back the XAU/USD bulls from placing aggressive bets and warrants some caution before positioning for any further appreciating move.
- Moving ahead, traders now look to the US economic docket – featuring the release of the final Q1 GDP print, the usual Weekly Jobless Claims, Durable Goods Orders, and Pending Home Sales. Apart from this, investors will closely scrutinize comments from FOMC members for cues about the Fed’s rate-cut path, which should influence the commodity.
- The market attention will then shift to the US Personal Consumption and Expenditure (PCE) Price Index, due on Friday. The crucial inflation data will play a key role in determining the next leg of a directional move for the USD and influence the bullion, which, so far, has been struggling to register any meaningful recovery from over a two-week low.
Gold price bears have the upper hand as ascending trend-channel breakdown remains in play
From a technical perspective, this week’s breakdown below the lower end of a short-term ascending channel was seen as a key trigger for the XAU/USD bears. However, neutral oscillators on daily/4-hour charts and a failure to find acceptance below the $3,300 mark warrant some caution. Hence, it will be prudent to wait for some follow-through selling below the said handle before positioning for any further losses toward the $3,245 region. The downward trajectory could extend further and drag the Gold price to the $3,210-$3,200 horizontal support en route to the $3,175 area.
On the flip side, any subsequent move-up is likely to attract fresh sellers and remain capped near the $3,368-3,370 region, or the trend-channel support breakpoint. A sustained strength beyond could allow the Gold price to reclaim the $3,400 round figure, which, if cleared decisively, could negate the negative outlook and shift the near-term bias in favor of bullish traders. The XAU/USD might then climb to the $3,434-3,435 intermediate hurdle en route to the $3,451-3,452 zone, or a nearly two-month top touched last week, and the all-time peak, around the $3,500 psychological mark.
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.
