Gold gives up growth after Barr’s comments from the Fed

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  • The price of gold is rising on safe-haven demand after news of the death of Iran’s president increases tensions in the region.
  • However, comments from the Federal Reserve’s Michael Barr are having a negative impact on the precious metal.
  • Gold is gaining in value due to the general breakdown of the world order, which is forcing central banks to stockpile this precious metal.
  • Changing expectations about when the Federal Reserve might cut interest rates further are helping gold’s underperforming price.

The price of gold (XAU/USD) is capping early gains and hit $2,410 on Monday following comments from Federal Reserve (Fed) Vice Chairman for Supervision Michael Barr, who suggested that interest rates would need to remain at current levels for longer to get inflation back under control. sustainable way.

In Monday’s speech, Barr was quoted as saying that “the Fed will need to allow some more time for stringent policy to continue its work.” Following his words, the US dollar rose by 0.1% and the price of gold fell.

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Gold rose to a up-to-date all-time high on Monday on its safe-haven properties, while the geopolitical risk barometer rose a notch on heightened tensions in the Middle East.

The price of gold is rising due to geopolitics and Fed expectations

The price of gold rose to a up-to-date all-time high following news that Iranian President Ebrahim Raisi and other prominent Iranian political figures died over the weekend in a helicopter crash in the north of the country, according to Reuters. This has increased uncertainty in a region already simmering with tensions over the Israel-Hamas conflict.

Russia’s opening of a second front in the Kharkiv Oblast and the ties evident between Russian President Putin and Chinese President Xi during Putin’s recent visit to Beijing further deepen the picture of a fractured world order, with solemn consequences for world peace and freedom of trade. All this is supported by Gold.

According to the IMF, demand for gold from BRICS countries and central banks of emerging economies has increased significantly in recent years to hedge against the threat of Western sanctions. This trend is likely to continue given recent events on the world stage.

US Federal Reserve more willing to cut interest rates

He also sees demand for gold as a result of a general decline in expectations that the Federal Reserve (Fed) will keep interest rates at the current, relatively high level for much longer. This is positive for gold because it lowers the opportunity cost of holding an underperforming asset compared to cash or bonds.

The change in outlook follows the cooler inflation and retail sales data for April released last week. While Federal Reserve members are avoiding saying when the Fed might actually start cutting interest rates, the market sees a 65% chance that federal funds rates will be lower than current levels in September, according to CME’s FedWatch tool, which tracks the price of interest rate futures .

Technical analysis: The price of gold is rising parabolically

The price of gold (XAU/USD) reached up-to-date all-time highs above $2,440 on Monday, breaking out of the ascending channel it had been in since May 2.

The short-term trend for this precious metal is up and further gains are expected, given the senior adage that “the trend is your friend.”

XAU/USD 4-hour chart

However, the Relative Strength Index (RSI) is overbought, indicating that long holders should not augment their positions. When the RSI is back in the neutral zone (below 70), it will be a signal to close long positions and means that the gold price is undergoing a correction. Any such corrections are likely to find support at the channel’s upper line and previous highs at $2,430.

A break above the up-to-date all-time high of $2,450 would likely mean continued gains to the next target at the psychologically significant $2,500 level.

The medium and long-term charts (daily and weekly) are also bullish, providing support for gold.

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