Gold touches a fresh high since October 21; seems poised to appreciate further
|- Gold reverses an intraday dip on Friday and remains well supported by a combination of factors.
- The Fed’s dovish outlook undermines the USD and supports the commodity amid geopolitical risks.
- A positive risk tone might hold back the XAU/USD bulls from placing fresh bets and cap the upside.
Gold (XAU/USD) attracts some dip-buyers near the $4,265-4,264 area and touches a fresh high since October 21 during the early European session on Friday. Moreover, the broader fundamental backdrop suggests that the path of least resistance for the commodity remains to the upside. Expectations that the US Federal Reserve (Fed) will lower borrowing costs further in 2026 keep the US Dollar (USD) depressed near a two-month low, touched on Thursday, and continue to act as a tailwind for the non-yielding yellow metal.
Apart from this, stalled talks on the Russia-Ukraine peace deal keep geopolitical risks in play and turns out to be another factor that pushes the safe-haven Gold higher for the fourth straight day. However, a generally positive tone around the equity markets might hold back the XAU/USD bulls from placing aggressive bets and keep a lid on any further gains. Nevertheless, the bullion remains on track to register strong weekly gains as traders now look forward to speeches from influential FOMC members for short-term opportunities.
Daily Digest Market Movers: Gold continues to be underpinned by dovish Fed expectations
- The US Federal Reserve's dovish outlook dragged the US Dollar to an over two-month low and lifted the non-yielding Gold to its highest level since October 21 on Thursday. In a widely expected move, the US central bank lowered borrowing costs by 25 basis points on Wednesday and projected just one more rate cut in 2026.
- Fed Chair Jerome Powell said during the post-meeting press conference that the US labor market has significant downside risks and that the central bank does not want its policy to push down on job creation. This fueled speculations about two more rate cuts by the Fed next year and, in turn, favors the XAU/USD bulls.
- Meanwhile, Asian stocks tracked the overnight strength on Wall Street and advanced in early trade on Friday, which is seen undermining demand for the traditional safe-haven bullion. However, prospects for lower interest rates in the US, along with persistent geopolitical uncertainties, could lend support to the commodity.
- Meanwhile, US President Donald Trump is extremely frustrated with Russia and Ukraine, and he doesn't want any more talk, his spokeswoman said on Thursday. Earlier, Ukrainian President Volodymyr Zelensky said that the US was pushing it to cede land to Russia as part of an agreement to end a nearly four-year war.
- There isn't any relevant market-moving economic data due for release from the US on Friday, leaving the USD at the mercy of speeches from influential FOMC members. Apart from this, the broader risk sentiment could provide some impetus to the yellow metal, which remains on track to register strong weekly gains.
Gold could aim to conquer $4,300; breakout through trading range remains in play
The overnight strong move up confirmed a fresh bullish breakout through a nearly two-week-old trading range hurdle, around the $4,245-4,250 region. Moreover, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone, suggesting that the path of least resistance for the Gold price remains to the upside. Hence, any further pullback towards the aforementioned resistance breakpoint could be seen as a buying opportunity. This should limit losses for the XAU/USD pair near the $4,220-4,218 region, which is followed by the $4,200 mark and the $4,170-4,165 support area. A convincing break below the latter might shift the bias in favor of bearish traders and pave the way for deeper losses.
On the flip side, the $4,300 mark now seems to act as an immediate hurdle, above which the XAU/USD pair could climb to the next relevant hurdle near the $4,328-4,330 region. The momentum could extend further and allow the Gold to aim towards challenging the all-time peak, around the $4,380 zone, touched in October. Some follow-through buying beyond the $4,400 round figure will be seen as a fresh trigger for bullish traders and set the stage for an extension of the commodity's recent well-established uptrend from the October monthly swing low.
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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