Gold remains confined in a range as traders await more cues about Fed's rate-cut path
- Gold remains confined in a range as traders opt to wait for the crucial FOMC rate decision.
- Dovish Fed expectations keep a lid on the recent USD recovery and support the commodity.
- Geopolitical risks turn out to be another factor lending support to the safe-haven XAU/USD.
Gold (XAU/USD) remains on the back foot for the third straight day, though it lacks bearish conviction and remains confined in a one-week-old range through the Asian session on Tuesday. Traders now seem reluctant and opt to move to the sidelines ahead of the FOMC rate decision on Wednesday. The focus will be on updated economic projections, including the so-called dot plot, and Federal Reserve (Fed) Chair Jerome Powell's post-meeting press conference, which could provide more cues about the future rate-cut path. This, in turn, will drive the US Dollar (USD) and provide a fresh impetus to the non-yielding yellow metal.
In the meantime, firming expectations that the US central bank will lower borrowing costs this week and bets for more rate cuts in 2026 keep a lid on the attempted USD recovery from its lowest level since late October, touched last week. This, along with persistent geopolitical uncertainties stemming from the protracted Russia-Ukraine war and the cautious market mood, might continue to act as a tailwind for the safe-haven Gold. Hence, it will be prudent to wait for strong follow-through selling before confirming that the XAU/USD pair has topped out in the near-term and positioning for any meaningful depreciation move.
Daily Digest Market Movers: Gold traders seem non-committed ahead of Fed rate decision on Wedensday
- The US Personal Consumption Expenditures (PCE) Price Index released last Friday did little to influence expectations for further policy easing by the Federal Reserve (Fed). In fact, traders are currently pricing in an over 85% chance that the US central bank will cut interest rates by 25 basis points at the end of a two-day policy meeting on Wednesday.
- The dovish outlook fails to assist the US Dollar to capitalize on the recent modest recovery move from its lowest level since late October and turns out to be a key factor that acts as a tailwind for the non-yielding Gold. Traders, however, seem reluctant and opt to wait for more cues about the Fed's future rate-cut path before placing fresh directional bets.
- The yield on the benchmark 10-year US government bond rose to a 2-1/2-month top on Monday amid speculations that Fed Chair Jerome Powell's comments during the post-meeting press conference might point to a higher bar for further rate reduction. This continues to act as a headwind for the non-yielding Gold through the Asian session.
- US President Donald Trump may walk away from supporting the Ukrainian war efforts against Russia, the American leader’s son said while speaking at a West Asia conference. This comes amid slow progress in Russia-Ukraine ceasefire talks and keeps geopolitical risks in play, which is seen as another factor supporting the safe-haven commodity.
- Traders now look forward to Tuesday's US economic docket – featuring the release of the ADP Weekly Employment Change and JOLTS Job Openings. The data might influence the USD price dynamics and provide some impetus to the XAU/USD pair, though traders might opt to wait on the sidelines heading into the key central bank event risk.
Gold needs to find acceptance below 200-hour EMA to back the case for deeper losses
The commodity has been showing some resilience below the 200-hour Exponential Moving Average (EMA) since the beginning of this month. Given that oscillators on the daily chart are holding in positive territory, a subsequent move back above the $4,200 mark could lift the Gold price to the next relevant hurdle near the $4,245-4,250 region. The latter represents the top end of a one-week-old range, above which the XAU/USD pair could surpass the $4,277-4,278 intermediate hurdle and aims to reclaim the $4,300 mark.
On the flip side, the $4,175-4,174 area could offer immediate support ahead of the monthly low, around the $4,164-4,163 zone. A convincing break below could make the Gold price vulnerable to accelerate the fall towards testing sub-$4,100 levels. The latter represents a short-term ascending trend-line extending from late October, which, if broken decisively, will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
