The price of gold (XAU/USD) rose slightly on Friday, hitting a two-day high of $4,096 as the value of the dollar fell along with Treasury yields after investors curbed their hawkish stance on the Federal Reserve (Fed). The XAU/USD pair is trading at $4,076, up 1.24%.
XAU/USD rises as investors withdraw hawkish Fed stance
The yellow metal has failed to gain traction over the past few days, even though the 10-year U.S. Treasury yield has fallen nearly 14 basis points since Wednesday to 4.374%. eExpectations that prices will fall following the resolution of the U.S.-Iran conflict and the reopening of the Strait of Hormuz have resulted in a decline in crude oil prices as well as U.S. yields.
The U.S. Dollar Index (DXY), which measures the dollar’s performance against six other indices, fell 0.10% to 101.33, representing a positive tailwind for the bullion’s prices.
Meanwhile, the latest U.S. inflation report, the Price Index for Basic Personal Consumption Expenditures (PCE), the Federal Reserve’s favorite measure of inflation, rose 3.4% y/y in line with expectations in May, up from April’s 3.3% and well above the U.S. central bank’s target of 2%.
The backdrop justifies the Fed’s hawkish desire to tighten monetary policy further, led by Minneapolis Fed President Neel Kashkari, who announced one rate hike in 2026 and told Bloomberg that “widespread inflation” suggests it is necessary to raise interest rates.
On Thursday, Chicago Fed President Austan Goolsbee said core inflation remains too high and is trending in the wrong direction. New York Fed John Williams added that inflation was still too high, although he revealed that policy was “well prepared.”
Recently, US data showed that University of Michigan consumer sentiment improved in June in the final reading from 48.9 to 49.5, exceeding forecasts and the May print of 44.8. Further data showed inflation expectations remained at 4.6% for one year and at 3.3% for five years, down from 3.4% in the previous reading.
Overall, investors expect the Fed to raise interest rates. Prime Terminal data shows that the chance of an interest rate boost at the September meeting is 73%, with Fed Funds futures implying a tightening of 18.46 basis points.
Next week’s U.S. economic report will include Fed Chairman Kevin Warsh’s speech to the U.S. Congress, key June nonfarm payrolls data, and the release of the ISM Manufacturing PMI for June.
XAU/USD Price Forecast: Gold Rebounds but Faces Strong Resistance at $4,100
Price action shows that gold continues to trend lower unless buyers clear key technical resistance levels such as the March 23 intraday low resistance at $4,098 before the round $4,100 level.
Momentum as measured by the relative strength index (RSI) is heading towards a neutral level; however, it remains bearish. However, traders must be aware that the RSI has formed a positive divergence, indicating that the momentum is tilted to the upside, while the XAU/USD price action is signaling the opposite by registering lower lows. Therefore, further growth is expected in the tiny term, although for it to materialize, it is necessary to break some resistance levels.
If XAU/USD clears $4,098, the next resistance will be psychological $4,100, followed by key psychological levels of $4,150 and $4,200. Next up is a downside resistance level near the $4,280-$4,300 range.
Downwards and to the path of least resistance, the first support for XAU/USD will be at USD 4,050, followed by USD 4,000. Below this level is the year-to-date low of $3,959.
Gold FAQs
Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, beyond its luster and employ in jewelry, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it is not tied to any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies in turbulent times, central banks typically diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves may provide a source of confidence in the country’s solvency. According to data from the World Gold Council, central banks added 1,136 tons of gold to their reserves in 2022, worth about $70 billion. This is the highest annual purchase since registration began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US treasury bonds, which are both major reserve assets and safe and sound haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their holdings in turbulent times. Gold is also inversely correlated with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets support the precious metal.
The price may change due to many factors. Geopolitical instability or fear of a deep recession can quickly cause gold prices to rise due to its safe-haven status. Gold, as a non-yielding asset, tends to rise at lower interest rates, while the higher cost of money tends to weigh on the yellow metal. Still, most of the movements depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAU/USD). A sturdy dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
