Gold (XAU/USD) has gained more than 0.50% in the past few days as the US dollar extended its losses amid Japan’s intervention in the market and news that Iran has presented a new proposal, which has pushed oil prices lower. At the time of writing, the XAU/USD pair is trading at $4,643, having bounced off the daily low of $4,560.
Bullion prices rose as oil cooled due to Iran’s proposal, but Fed predicted the opposite
Wall Street is trading in positive territory amid news that Iran has sent an offer to the US through Pakistan, which impacted oil prices, with WTI seen trading at $101.91 per barrel, down more than 3% on the day.
The central bank’s weekly fiesta, led by the Federal Reserve, showed that policymakers are likely to keep interest rates “higher for a longer period of time” due to inflationary pressures stemming from the Middle East conflict.
According to Prime Terminal data, the money market expects the Federal Reserve to keep interest rates unchanged throughout the year.
Japanese authorities intervened in FX markets on Thursday and spent up to $35 billion USD, according to Bank of Japan data – slightly less than the $36.8 billion used in July 2024. This pushed the greenback to a two-week low, as reflected by the US Dollar Index (DXY). At the time of writing, the DXY, which measures the US currency’s performance against a basket of six other currencies, has recovered somewhat and is down 0.03% at 98.07.
Alexander Kuptsikevich, senior market analyst at FXPro, commented that bullion is struggling to take advantage of the US dollar’s weakness. “The fundamental driver is a reassessment of monetary policy prospects towards a tighter stance, which increases the appeal of government bonds,” he said.
On the data front, the US ISM Manufacturing PMI in April came in at 52.7, unchanged from March, suggesting that manufacturing activity remains solid. Still, a measure of input prices within the survey rose to 84.6 from 78.3, the highest reading since April 2022.
The Federal Reserve left rates unchanged on Wednesday, although the decision was not unanimous. Three of the four dissenters at Wednesday’s FOMC meeting issued a statement assessing the reasons for the disagreement.
Beth Hammack (Cleveland Fed) observed that higher oil prices are adding to inflationary pressures and said a reduction in bias is now inappropriate. Neel Kashkari (Minneapolis Fed) cautioned that disruptions in the Strait of Hormuz or energy facilities could shock prices, potentially leading the Fed to tighten policy. Lori Logan of the Dallas Fed said the Fed’s next move could be a rate cut or a rate hike.
Next week, key US economic events include factory orders, Fed speech, ISM Services PMI and April nonfarm payrolls report.
XAU/USD Technical Outlook: Gold stuck in $150 range awaiting catalysts
Gold is set to trade sideways, yet it looks like it has reached around $4,550. The Relative Strength Index (RSI) remains bearish, indicating that sellers are in control and holding key resistance levels above the $4,700 mark.
In the short term, buyers are pushing the yellow metal higher. If gold surpasses $4,700, it opens the door to challenge the confluence of the 20-day and 100-day simple moving averages (SMA), which are around the $4,718-$4,749 area. If this is breached, the next area of interest will be the 50-day SMA at $4,834.
On the downside, the first support is seen at $4,600. A breach of the latter would expose a low of $4,510 on April 29, before a low of $4,351 on March 26.
Sona FAQ
Gold has played an important role in human history as it has been widely used as a store of value and medium of exchange. Currently, apart from its luster and use for jewellery, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and depreciating currencies because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tonnes of gold, worth about $70 billion, to their reserves in 2022, according to World Gold Council data. This is the highest annual purchase since records began. Central banks of emerging economies like China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are both major reserve and safe-haven assets. When the dollar depreciates, gold rises, helping investors and central banks diversify their assets in turbulent times. Gold is also inversely correlated with risky assets. Stock market rallies weaken the price of gold, while selling in riskier markets benefits the precious metal.
The price may increase due to a variety of factors. Gold’s safe-haven status could cause its price to rise sharply due to geopolitical instability or fears of a deep recession. As a yield-low asset, gold tends to rise with low interest rates, while higher costs of money generally weigh on the yellow metal. Still, most of the moves depend on how the US dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong dollar keeps the price of gold in check, while a weak dollar is likely to push gold prices higher.
