Gold continues scaling higher; eyes $4,700 as USD remains depressed amid peace deal hopes
- Gold attracts buyers for the second straight day as US-Iran peace deal hopes undermine the USD.
- Easing inflation fears temper hawkish Fed bets and contribute to driving flows into the commodity.
- Traders now look forward to the US ADP report for some impetus ahead of the US NFP on Friday.
Gold (XAU/USD) extends its intraday ascent and climbs to an over one-week high, above the $4,680 level, during the first half of the European session on Wednesday. The US Dollar (USD) weakens across the board amid optimism over a potential US-Iran peace deal, helping the commodity to build on its recovery from a more than one-month trough, around the $4,500 mark set on Monday. Moreover, retreating Crude Oil prices ease inflationary concerns and temper hawkish US Federal Reserve (Fed) bets, which is seen as another factor driving flows towards the non-yielding yellow metal for the second straight day.
US President Donald Trump said on Tuesday that “Project Freedom” – the US military’s operation to guide commercial ships out of the Strait of Hormuz – will be paused for a short period of time to see whether a deal with Iran can be finalized. Trump added in a post on Truth Social that great progress has been made toward a complete and final agreement with representatives of Iran. This follows earlier comments from Defense Secretary Pete Hegseth that the US was not seeking to re-escalate tensions with Iran, and that the US-Iran ceasefire holds for now. Furthermore, Secretary of State Marco Rubio announced that the US-led ‘Operation Epic Fury’ launched against Iran, jointly with Israel, on 28 February, is over.
This raised hopes for a peace deal, which would end the US-Israeli war in Iran and reopen the economically vital strait, boosting investors' confidence and undermining the USD's reserve currency status. Meanwhile, the latest developments dragged crude oil prices to a one-week low, easing fears of surging consumer inflation and paving the way for the US Fed to maintain a cautious stance. However, the CME Group's FedWatch Tool suggests that traders are now pricing in over a 35% probability that the US central bank will hike rates by the end of this year. This might hold back traders from placing aggressive bearish bets around the USD and keep a lid on any further near-term appreciation for the Gold price.
Hence, it will be prudent to wait for strong follow-through buying before confirming that the XAU/USD pair has bottomed out near the $4,500 mark and positioning for further gains. Traders now look to the US ADP report on private-sector employment, due later during the early North American session. Moreover, speeches from influential FOMC members and geopolitical developments will drive the USD demand. The focus, however, will remain glued to the closely-watched US Nonfarm Payrolls (NFP) report on Friday, which will play a key role in determining the near-term trajectory for the buck and the Gold price.
XAU/USD 4-hour chart
Gold seems poised to appreciate further; 200-SMA breakout on H4 holds the key for bulls
From a technical perspective, this week's goodish rebound from the $4,500 mark, or the vicinity of the 50% retracement level of the March-April rise, and a subsequent strength beyond the $4,600 round figure favor the XAU/USD bulls. Moreover, the precious metal is trading above the 200-period Simple Moving Average (SMA) pivotal hurdle at $4,651.69, which backs the case for further gains.
Meanwhile, momentum indicators support the topside stance. In fact, the Relative Strength Index (RSI) hovers near 59, indicating firm but not yet overbought conditions. Furthermore, the Moving Average Convergence Divergence (MACD) histogram stays positive and rising, hinting that bullish pressure is rebuilding as the XAU/USD pair challenges overhead supply.
On the downside, initial support is seen at the 38.2% Fibo. retracement at $4,588.83, with deeper pullbacks likely to find demand at the 50.0% retracement near $4,495.62 and then the 61.8% level around $4,402.41 if sellers gain traction. A convincing break below the latter will negate the constructive outlook and shift the near-term bias back in favor of the XAU/USD bears.
(The technical analysis of this story was written with the help of an AI tool.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
