$4,400 back in sight: Gold bulls regain control ahead of FOMC Minutes
- Gold bounces back toward $4,400 early Wednesday as US Treasury bond yields ease ahead of Fed Minutes.
- US Dollar enters bearish consolidation, despite surging Oil prices and Hormuz jitters.
- Technically, recapturing $4,450 is critical for Gold bulls amid a bullish daily chart.
Gold is looking back toward the $4,400 level early Wednesday, reversing a steep pullback seen on Tuesday. All eyes now remain on the Minutes of the US Federal Reserve (Fed) July policy meeting, due later on Wednesday, for fresh trading impetus.
Gold looks to FOMC Minutes for the next leg up
Gold has resumed its upside momentum, following a temporary pause, as bulls continue to cheer fading hopes that the Fed will raise interest rates at its September 16-17 monetary policy meeting.
The recent weak US labor market data and mild inflation readings prompted markets to scale back their bets on a September Fed rate hike from roughly 50% to 35% as of writing, according to the CME Group’s FedWatch Tool.
Therefore, the upcoming Federal Open Market Committee (FOMC) Minutes will be closely scrutinized to gauge the thinking among the board members under the new leadership of Kevin Warsh, which could offer fresh insights on the central bank’s path forward on interest rates.
It’s worth noting that the FOMC voted 9-3 to hold rates at 3.5%-3.75% last month, while Fed Chair Warsh stuck to his rhetoric of maintaining price stability.
If markets perceive the FOMC’s internal debate as less hawkish, with policymakers sticking to the wait-and-see approach, it could trigger a fresh sell-off in the US Dollar (USD) alongside US Treasury bond yields, boosting non-yielding assets such as Gold.
However, the Committee shows urgency to act on rates amid the Middle East conflict-driven rise in oil prices and inflation concerns. Gold could come under intense selling pressure as the USD could stage a recovery. In this scenario, the odds for a September Fed rate hike could regain traction.
In the meantime, Gold breathes a sigh of relief following the previous sell-off fuelled by the US Treasury bond yields rally to multi-decade highs.
Global yields shot through the roof on Tuesday, as uncertainty around the reopening of the Strait of Hormuz drove Oil prices to three-week highs and revived inflation fears.
“US President Donald Trump said on Tuesday there were no talks with Iran and insisted the Strait of Hormuz was open, contradicting Iran's assertion that the waterway remained shut to shipping,” per Reuters.
Tuesday’s Gold pullback could also be partially attributed to profit-taking ahead of the upcoming Fed Minutes release.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,354.92, maintaining a bullish near-term bias as spot holds above both the 21-day and 50-day simple moving averages (SMAs) at $4,215.01 and $4,155.34, respectively. The pair, however, is approaching a key technical cap set by the 100-day SMA at $4,381.21, while the longer-term 200-day SMA at $4,509.67 remains a broader topside barrier. The Relative Strength Index (RSI) at 59.21 stays in constructive territory, hinting that bullish momentum is intact but not yet overextended.
On the downside, initial support is seen at the 21-day SMA near $4,215, followed by the 50-day SMA around $4,155, which together define a cushioning demand zone on pullbacks. On the topside, immediate resistance emerges at the 100-day SMA at $4,381, ahead of the more significant 200-day SMA near $4,510; a sustained break above these levels would reinforce the upward trend, while failure to clear $4,381 could trigger a period of consolidation above the current moving-average floor.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold holds firm as markets question Fed resolve behind rising US yields
Analysts at Commerzbank highlight that the gold price is "holding at around USD 4,400 per troy ounce, thereby defying the rise in oil prices and US bond yields." They argue that the latest move higher in US yields "is therefore not attributable to increased expectations of interest rate hikes, but appears to have other causes." In their view, "it could be, for instance, that the market doubts the Fed will raise interest rates sufficiently to combat inflation effectively," or is reacting to other concerns that are not directly tied to tighter policy. Commerzbank concludes that "both of these explanations would clearly be positive for gold," helping to explain the metal’s resilience despite the less supportive backdrop from nominal yields.
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.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
