- Gold is recovering on Tuesday as safe-haven demand increases following Israel’s invasion of Lebanon.
- Fed Chairman Powell adopts a more cautious, data-dependent stance, which caps gains for the yellow metal.
- Technically, XAU/USD is at risk of reversing its short-term uptrend and pushing lower.
Gold (XAU/USD) recovers over 1.0% to trade in the $2,660s per troy ounce on Tuesday after the Israeli army mounts a ground invasion of Lebanon, stoking geopolitical tensions and increasing safe-haven demand for Gold. This, and the fading effect of China’s stimulus program, which temporarily diverted capital back into property and rallying Chinese equity markets, combine to help the yellow metal recover after two consecutive days of losses.
Gold may see upside limited by Fed commentary
Gold will probably see upside capped, however, by comments from the Federal Reserve (Fed) Chairman Jerome Powell, who said on Monday that although the Fed made a larger-than-standard 50 basis points (bps) (0.50%) cut to interest rates at its last meeting, that did not automatically imply the same would happen at future meetings.
Powell said the FOMC is “not a committee that feels like it is in a hurry to cut rates quickly,” during his speech at the NABE conference. The Fed Chairman inferred that the Fed would probably make two more 25 bps cuts to interest rates before the year-end, but that it was not on a “pre-set course.”
The market-based probabilities of the Fed reducing interest rates by 50 bps at its November meeting have fallen from over 60% last week to the mid-30% level on Tuesday, according to the CME FedWatch tool.
Apart from Powell’s comments, stronger-than-expected data has also reduced bets of another “jumbo” rate cut. The decline in chances of a larger cut has weighed on Gold, which is negatively correlated to interest rates. The yellow metal is a non-interest-bearing asset, so when interest rates are lower, it becomes more attractive to investors, and vice versa if rates remain high or rise.
Technical Analysis: Gold resumes uptrend after deep correction
Gold recovers after pulling back to the 50-period Simple Moving Average (SMA) at the 4-hour chart.
There is a risk more weakness could possibly follow, bringing Gold down to the trendline at about $2,615-$2,620. A break below the $2,625 Monday’s low would provide bearish confirmation of such a move.
XAU/USD 4-hour Chart
On a medium and long-term basis, however, Gold remains in an uptrend and since it is a foundational principle of technical analysis that “the trend is your friend,” the odds favor a resumption higher. A break above the $2,685 all-time high would confirm a bullish continuation to round-number targets at $2,700 and then $2,750.
Alternatively, a break below the trendline could lead to yet further weakness until firm support is reached at $2,600 (September 18 high), followed by $2,550 and then $2,544 (0.382 Fibonacci retracement of the September rally).
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD accelerates losses to 1.0930 on stronger Dollar
The US Dollar's recovery regains extra impulse sending the US Dollar Index to fresh highs and relegating EUR/USD to navigate the area of daily troughs around 1.0930 in the latter part of Friday's session.
GBP/USD plummets to four-week lows near 1.2850
The US Dollar's rebound keep gathering steam and now sends GBP/USD to the area of multi-week lows in the 1.2850 region amid the broad-based pullback in the risk-associated universe.
Gold trades on the back foot, flirts with $3,000
Gold prices are accelerating their daily decline, steadily approaching the critical $3,000 per troy ounce mark as the Greenback's rebound gains extra momentum and US yields tighten their retracement.
Can Maker break $1,450 hurdle as whales launch buying spree?
Maker holds steadily above $1,250 support as a whale scoops $1.21 million worth of MKR. Addresses with a 100k to 1 million MKR balance now account for 24.27% of Maker’s total supply. Maker battles a bear flag pattern as bulls gather for an epic weekend move.
Strategic implications of “Liberation Day”
Liberation Day in the United States came with extremely protectionist and inward-looking tariff policy aimed at just about all U.S. trading partners. In this report, we outline some of the more strategic implications of Liberation Day and developments we will be paying close attention to going forward.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.