Gold price holds steady near all-time peak; Fed decision awaited
- Gold price sits near a record high amid geopolitical risks and rising trade tensions.
- Fed rate cut bets benefit the non-yielding yellow metal and remain supportive.
- A modest USD bounce caps the commodity ahead of the crucial FOMC decision.
Gold price (XAU/USD) enters a bullish consolidation phase near the all-time peak as bulls pause for a breather and opt to wait for the outcome of a two-day FOMC policy meeting due later during the US session on Wednesday. Market consensus strongly suggests that the Federal Reserve (Fed) will keep the federal funds rate unchanged at the current range of 4.25% to 4.50%. Hence, the focus will be on updated economic projections and the post-meeting press conference, where comments by Fed Chair Jerome Powell will be scrutinized for cues about the future rate-cut path. This, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide some meaningful impetus to the non-yielding yellow metal.
Heading into the key central bank event risk, some repositioning trade assists the USD in recovering slightly from its lowest level since October touched on Tuesday and acts as a headwind for the Gold price. The downside, however, remains cushioned in the wake of the uncertainty over US President Donald Trump's aggressive trade policies and their impact on the global economic outlook. Apart from this, the risk of a further escalation of geopolitical tensions in the Middle East continues to act as a tailwind for the safe-haven bullion and supports prospects for an extension of a multi-month-old uptrend. However, slightly overbought conditions on the daily chart might hold back traders from placing fresh bullish bets around the XAU/USD pair.
Daily Digest Market Movers: Gold price bulls turn cautious ahead of the highly-anticipated FOMC decision
- Gold price shot to a fresh record high, around the $3,038-3,039 region on Tuesday as rising Middle East tensions and concerns about US President Donald Trump's tariff plans continue to fuel demand for the safe-haven asset.
- Israeli airstrikes on Hamas targets in Gaza, killing more than 400 people. Israeli Prime Minister Benjamin Netanyahu said he ordered strikes because Hamas had rejected proposals to extend the ceasefire held since January.
- Trump has threatened to impose reciprocal and sectoral tariffs, which he said will come into effect on April 2. This comes on top of a flat 25% duty on steel and aluminum since February, fueling global trade war fears.
- Traders ramp up their bets that the Federal Reserve will have to lower interest rates this year by more than expected amid the rising possibility of an economic downturn on the back of the Trump administration’s aggressive policies.
- The current market pricing indicated the possibility that the Fed could lower borrowing costs by 25 basis points each at the June, July, and October monetary policy meetings, which further underpins the now-yielding yellow metal.
- The US Dollar stages a modest bounce from over a five-month low touched on Tuesday as traders opt to lighten their bearish bets ahead of the FOMC decision, scheduled to be announced later during the US session this Wednesday.
- The accompanying monetary policy statement and comments by Fed Chair Jerome Powell will be scrutinized closely for cues about the future rate cut path, which will drive the USD demand and influence the XAU/USD pair.
Gold price needs to consolidate before the next leg up amid slightly overbought RSI on the daily chart
The daily Relative Strength Index (RSI) is holding above the 70 mark, suggesting slightly overbought conditions. Heading into the key central bank event risk, this makes it prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for any further appreciating move. Meanwhile, the recent breakout and acceptance above the $3,000 psychological mark suggests that the path of least resistance for the Gold price remains to the upside.
Meanwhile, any corrective slide could be seen as a buying opportunity and remain limited near the $3,005-3,000 area. This is followed by support near the $2,980-2,978 region, which if broken might prompt some technical selling and drag the Gold price to the $2,956 zone. The downward trajectory could extend further towards the $2,930 intermediate support before the XAU/USD eventually drops to the $2,900 mark en route to last week's swing low, around the $2.880 region.
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.