Gold pulls back from $5,249 as US Dollar firms on Fed rhetoric
- Gold retreats from a three-week high as the US Dollar Index rebounds on policy uncertainty.
- Hawkish comments from Fed's Austan Goolsbee and Raphael Bostic temper aggressive easing bets.
- Middle East tensions and fresh US tariffs keep underlying demand for bullion intact.
Gold price retreats from three-week high of $5,249 on Tuesday as the Greenback pares some of Monday’s losses on uncertainty about trade policies and hawkish comments by some Federal Reserve (Fed) officials. At the time of writing, XAU/USD trades at $5,160, down 1.24%.
XAU/USD eases over 1% as hawkish Fed rhetoric and tariff uncertainty lift the Greenback
Last Friday, the US Supreme Court ruled against US President Donald Trump’s tariffs imposed under the national emergency IEEPA act, which triggered a rally on US equities. In response, the Trump administration enacted duties of 10% worldwide under Section 122, which became effective as of Tuesday at around midnight.
In the meantime, the White House announced over the weekend that it will hike tariffs from 10% to 15%, pushing bullion prices higher.
However, its advance was capped by the Greenback’s advance, as depicted by the US Dollar Index (DXY). The DXY, which measures the performance of the buck versus six peers, is up 0.11% at 97.80.
Gold to remain underpinned by high tensions in the Middle East
Geopolitics is also pushing the yellow metal higher, amid rumors that the US might deliver targeted strikes on Iran. Earlier, the White House revealed that Trump’s first option is always diplomacy, but it is willing to use force if necessary.
Iran’s Deputy Foreign Minister stated that Tehran is ready to take any necessary steps to reach a deal with the US.
Both parties will hold a third round of talks on Thursday in Geneva amid heightened tensions over a potential military clash between Washington and Tehran.
US consumer confidence improves; Federal Reserve officials lean hawkish
The Conference Board Consumer Confidence in February improved from an upwardly revised figure of 89 in January to 91.2. The report revealed that US households are seeing signs of stabilization in the labor market and that inflation has tempered.
Chicago Fed Austan Goolsbee pushed back against easing expectations, arguing rates should stay unchanged as inflation is still above the Fed’s 2% mandate. Atlanta Fed President Raphael Bostic echoed the stance, underscoring the need to keep inflation front and center.
Despite this, money markets are pricing in 54 basis points of easing by the Fed towards the year’s end. Nevertheless, the first cut could be delayed until the July 29 meeting, according to Prime Market Terminal.
Ahead in the week, the US economic docket will feature more speeches by Fed officials on Wednesday, ahead of Thursday’s Initial Jobless Claims data.
XAU/USD Technical outlook: Gold rally pauses, bulls eye $5,300
Gold’s uptrend remains intact after clearing key resistance seen at $5,100. On the break of this level, buyers pushed the non-yielding metal towards $5,249, before retreating $100.00. Nevertheless, momentum is still bullish as delineated by the Relative Strength Index (RSI), despite showing signs that bulls are taking a breather.
If XAU/USD reclaims $5,200, the next key resistance would be $5,249 ahead of $5,300. On further strength, eyes are set on January 30 high at $5,451, followed by the record peak near $5,600.
Conversely, if bullion tumbles below the February 24 low of $5,093, the next support would be the 20-day Simple Moving Average (SMA) at $5,033 before testing $5,000.
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
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
