Gold clings to gains near one-month top as receding Fed rate hike bets undermine USD
- Gold gains strong positive traction on Wednesday as US-Iran peace deal hopes weigh on the USD.
- Weak oil prices ease inflation fears and temper Fed hike bets, further benefiting the yellow metal.
- The technical setup seems to have shifted in favor of bulls and backs the case for additional gains.
Gold (XAU/USD) maintains its strong bid tone through the first half of the European session and currently trades around $4,170, just below a nearly one-month high touched earlier this Wednesday. The latest optimism over a potential US-Iran deal and the reopening of the Strait of Hormuz temper US Federal Reserve (Fed) rate-hike bets. This, in turn, keeps the US Dollar (USD) bulls on the defensive and is seen as a key factor pushing the non-yielding yellow metal higher for the second straight day.
Despite mixed signals, investors remain hopeful about a diplomatic resolution to end the five-month-old US-Iran war. In fact, US Treasury Secretary Scott Bessent said that the US could reach a deal with Iran to reopen the Strait of Hormuz by Wednesday and move toward a more normalized position in this conflict. Adding to this, Axios, citing sources, reported that the US, Iran, and Oman are closing in on an interim agreement to reopen the strategic waterway. Furthermore, the OPEC+ decision on Sunday to increase production from September helps ease supply concerns and dragging crude oil prices to a fresh low since June 13. This, in turn, alleviates inflation concerns and hawkish Fed expectations, which are seen exerting pressure on the USD and supporting the non-yielding Gold.
Traders, however, are still pricing in a greater chance that the US central bank will raise borrowing costs by the end of this year amid signs that the US labor market is beginning to find its footing. The US Job Openings and Labor Turnover Survey (JOLTS) released on Tuesday by the Bureau of Labor Statistics showed that the number of job openings edged lower to 7.36 million but remained above levels seen last year. Adding to this, Kansas City Fed President Jeff Schmid and Philadelphia Fed President Anna Paulson backed the case for tighter monetary policy and higher interest rates to fight inflation. This might hold back USD bears from placing aggressive bets as the focus remains on the official jobs data – popularly known as the Nonfarm Payrolls (NFP) report on Friday.
Strategists at BNY note that this week’s data calendar is dominated by Friday’s July Nonfarm Payrolls release, with “market expectations currently see around 80,000 new jobs.” They argue that the labour market now requires only modest monthly gains to prevent joblessness from rising, stating that “we don’t think the payrolls ‘breakeven rate’ is much above 50,000 per month, if that.” In their view, “it currently doesn’t require large monthly employment gains to keep the unemployment rate steady, thanks to a much slower labor force growth than before the pandemic.”
In the meantime, Wednesday's US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI – will be watched for short-term opportunities later during the North American session. Apart from this, fresh developments surrounding the Middle East crisis should provide some impetus to the USD and the Gold price. The aforementioned fundamental backdrop, meanwhile, seems tilted in favor of XAU/USD bulls and supports prospects for a further intraday appreciating move.
XAU/USD 4-hour chart
Technical Analysis: Gold's constructive setup backs the case for further gains
From a technical perspective, an intraday breakout through the 200-period Exponential Moving Average (EMA) hurdle on the 4-hour chart validates the positive outlook. Adding to this, the Relative Strength Index around 65 suggests firm bullish momentum, while the Moving Average Convergence Divergence (MACD) histogram remains positive, hinting that buyers still retain control in the short term.
However, the current up-move could start to struggle near $4,200, with overbought signals on momentum gauges likely to cap the upside if buying enthusiasm fades. On the downside, immediate support is seen at the 200-period EMA near $4,115, where a break would expose a deeper correction toward the daily low, near $4,065, en route to the $4,043-$4,042 region, the $4,020 level and the $4,000 psychological mark.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.