Gold price sticks to positive bias as sustained safe-haven buying offsets modest USD strength
- Gold price attracts buyers for the third straight day amid the global flight to safety.
- Rising geopolitical risks and trade uncertainties boost traditional safe-haven assets.
- Fed rate cut bets also benefit the XAU/USD pair, though rebounding USD caps gains.
Gold price (XAU/USD) sticks to its bullish tone for the third consecutive day on Friday and trades close to its highest level since April 22 through the first half of the European session. Against the backdrop of trade-related uncertainties, a further escalation of geopolitical tensions in the Middle East tempers investors' appetite for riskier assets. This, in turn, boosts demand for traditional safe-haven assets, including the yellow metal.
Adding to this, bets that the Federal Reserve (Fed) would lower borrowing costs further in 2025 contribute to driving flows towards the non-yielding Gold price. However, a goodish US Dollar (USD) recovery from the lowest level since March 2022 keeps a lid on any further appreciating move for the bullion. Nevertheless, the fundamental backdrop seems tilted in favor of the XAU/USD bulls and backs the case for further gains.
Daily Digest Market Movers: Gold price bulls retain short-term control amid rising geopolitical tensions
- Israel launched pre-emptive airstrikes against Iran on Friday, targeting its nuclear plant and military sites. This marks a dramatic escalation of the long-running regional conflict in the Middle East and lifts the safe-haven Gold price to its highest level since April 22 during the Asian session.
- Israel's Prime Minister Benjamin Netanyahu said that the operation targeted Iran’s nuclear program and will continue for as many days as it takes to remove this threat. Israel declared a state of emergency, saying that retaliatory action from Iran was possible following the operation.
- Meanwhile, a spokesperson for Iran's armed forces said that Israel carried out the attacks with support from the US. However, top US diplomat Marco Rubio said that America was not involved in the strikes and that Israel had told them that this action was necessary for its self-defense.
- Iran’s Supreme Leader, Ayatollah Ali Khamenei, said that with this attack, Israel has prepared a bitter fate for itself and vowed severe punishment for what he called a crime. This raises the risk of a region-wide and more devastating war, weighing on investors' sentiment.
- On the trade-related front, US President Donald Trump expanded the 50% steel tariffs to a range of household appliances. US Commerce Secretary Howard Lutnick said that tariff levels on Chinese imports remain at 55% and would not change from this point onward.
- The US Bureau of Labour Statistics reported that the Producer Price Index remained muted in May and rose 0.1% compared to a revised 0.2% decline in April. This comes on top of a marginal rise in US consumer prices, backing the case for further easing by the Federal Reserve.
- Traders now look to the Preliminary release of the Michigan US Consumer Sentiment Index and Inflation Expectations for a short-term impetus. The focus, however, will remain glued to developments surrounding Trump's trade policies and conflicts in the Middle East.
Gold price could aim to retest all-time peak once the $3,445 immediate hurdle is cleared decisively
From a technical perspective, the recent move higher witnessed over the past month or so has been along an upward-sloping channel. This points to a well-established short-term uptrend, which, along with the fact that oscillators on the daily chart are holding in bullish territory, validates the near-term positive outlook for the Gold price. Hence, a subsequent move towards challenging the all-time peak, around the $3,500 psychological mark touched in April, looks like a distinct possibility. The said handle coincides with the top boundary of the ascending channel, which if cleared decisively will be seen as a fresh trigger for bullish traders.
On the flip side, any corrective pullback might now be seen as a buying opportunity and find decent support near the $3,400 mark. Some follow-through selling below the $3,385 region, however, should pave the way for additional losses towards the $3,355 intermediate support en route to the $3,330-3,329 region, representing the lower end of the ascending channel. A convincing break below the latter would negate the constructive setup and shift the near-term bias in favor of bearish traders.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
