Gold (XAU/USD) prints consecutive days of gains, up more than 0.50% as US dollar losses widen amid Japan’s market intervention and news that Iran has made a fresh proposal, sending oil prices tumbling. At the time of writing, the XAU/USD pair is trading at $4,643 after rebounding from intraday lows of $4,560.
Bullion gains as Iran proposes oil cooling, but Fed calls for growth
Wall Street is trading positive on news that Iran sent a proposal to the United States via Pakistan, weighing on crude oil prices, with WTI trading at $101.91 per barrel, down more than 3% on the day.
The weekly central bank festival, chaired by the Federal Reserve, revealed that policymakers may keep interest rates “higher for longer” due to inflationary pressures from the Middle East conflict.
Prime Terminal data shows that money markets expect the Federal Reserve to keep interest rates unchanged throughout the year.
Japanese authorities intervened in currency markets on Thursday, spending up to $35 billion – slightly less than the $36.8 billion used in July 2024, according to data from the Bank of Japan. This caused the dollar to fall towards two-week lows, as reflected by the US dollar index (DXY). At the time of writing, the DXY index, which measures the performance of the U.S. currency against a basket of six other currencies, has recovered somewhat and is down 0.03% to 98.07.
Alexander Kuptsikevich, senior market analyst at FxPro, commented that Bullion is struggling to take advantage of the weakness in the US dollar. “The fundamental factors remain the reassessment of the monetary policy outlook towards tightening monetary policy, which increases the attractiveness of government bonds,” he said.
On the data side, the US ISM manufacturing PMI for April was 52.7, unchanged from March, showing that activity in the manufacturing sector remains solid. Nevertheless, the survey’s input price measure rose from 78.3 to 84.6, the highest reading since April 2022.
The Federal Reserve left interest rates unchanged on Wednesday, although the decision was not unanimous. Three of the four opponents at Wednesday’s FOMC meeting issued a statement assessing the reasons for their opposition.
Beth Hammack (Cleveland Fed) noted that higher oil prices are increasing inflation pressures and said an easing stance is unwarranted at this time. Neel Kashkari (Minneapolis Fed) warned that disruptions in the Strait of Hormuz or energy facilities could trigger a price shock, which could prompt the Fed to tighten policy. Lorie Logan of the Dallas Fed noted that the Fed’s next move could be to cut or raise rates.
Next week’s key U.S. economic events include factory orders, Fed speeches, the ISM Services PMI and the April nonfarm payrolls report.
XAU/USD Technical Outlook: Gold Trapped in $150 Range Waiting for Catalysts
Gold may be trading sideways, but it appears to have settled around $4,550. The relative strength index (RSI) remains bearish, indicating that sellers are in control, based on key resistance levels above $4,700.
In the tiny term, buyers are pushing the yellow metal higher. If gold breaks above $4,700, it opens the door to questioning the convergence of the 20-day and 100-day uncomplicated moving averages (SMAs), which are trending around $4,718-4,749. In the event of a breach, the next area of concern will be the 50-day SMA at $4,834.
On the other hand, the first support is perceptible at the level of $4,600. A breach of the latter will reveal the April 29 low of $4,510, before the March 26 low of $4,351.
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 protected 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 favor 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. Despite this, 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.
