Gold price traders seem non-committed ahead of the crucial Fed policy decision
- Gold price consolidates in a narrow band on Wednesday amid mixed fundamental cues.
- A positive risk tone caps the XAU/USD, though sliding US bond yields lend some support.
- Traders also seem reluctant to place directional bets ahead of the FOMC policy decision.
Gold price (XAU/USD) struggles to capitalize on the previous day's positive move and oscillates in a range above the $2,760 level during the Asian session on Wednesday. Signs of stability in the equity markets act as a headwind for the safe-haven precious metal. Meanwhile, a fresh leg down in the US Treasury bond yields and bets that the Federal Reserve (Fed) will cut rates further this year cap the US Dollar (USD) recovery from over a one-month low. This, along with concerns about US President Donald Trump's tariff plans, lends support to the non-yielding yellow metal.
Traders also seem reluctant to place aggressive bets around the Gold price and opt to wait on the sidelines ahead of the key central bank event risk – the outcome of a two-day FOMC monetary policy meeting. The Fed is scheduled to announce its decision later during the North American session and is widely expected to stand pat, despite Trump's demand to cut interest rates immediately. Nevertheless, the Fed's policy outlook will play a key role in influencing the near-term USD price dynamics and determining the next leg of a directional move for the precious metal.
Gold price bulls turn cautious ahead of the Fed policy update; downside seems cushioned
- Calmer conditions across global markets dent demand for traditional safe-haven assets and fail to assist the Gold price to build on Tuesday's positive move ahead of the key central bank event risk.
- The yield on the benchmark 10-year US government bond languishes near a one-month trough, capping the overnight US Dollar recovery and acting as a tailwind for the non-yielding yellow metal.
- Investors remain concerned about the potential economic fallout from US President Donald Trump's plans to impose tariffs on imported computer chips, pharmaceuticals, aluminum, steel and copper.
- The move, aimed at pushing the companies to boost production in the US, could trigger a fresh wave of global trade wars and might continue to act as a tailwind for the safe-haven precious metal.
- Data released on Tuesday by the US Census Bureau showed that Durable Goods Orders declined 2.2% in December, compared to a 2% fall in November and market expectations for a 0.8% rise.
- Separately, the Conference Board (CB) reported that the Consumer Confidence Index dropped to 104.1 in January from 109.5 in the previous month and the Present Situation Index fell to 134.3.
- Meanwhile, the market focus remains glued to the Federal Reserve's policy decision first meeting this year, which will drive the US Dollar demand and provide a fresh impetus to the XAU/USD.
Gold price could aim to challenge all-time peak once the $2,772-2,773 hurdle is cleared decisively
From a technical perspective, the recent breakout through the $2,720-2,725 horizontal barrier and positive oscillators on the daily chart suggest that the path of least resistance for the Gold price remains to the upside. A subsequent move above the $2,772-2,773 area will reaffirm the constructive outlook and lift the XAU/USD beyond the $2,786 area, or the highest level since October 2024 touched last Friday, towards the all-time peak, near the $2,790 zone. Some follow-through buying, leading to a strength beyond the $2,800 mark, will be seen as a fresh trigger for bullish traders and pave the way for an extension of a well-established uptrend witnessed over the past month or so.
On the flip side, weakness below the $2,755-2,753 immediate support might continue to attract some buyers and remain limited near the weekly swing low, around the $2,730 area touched on Monday. Some follow-through selling below the $2,725-2,720 resistance-turned-support could pave the way for deeper losses and drag the Gold price to the $2,707-2,705 area en route to the $2,684 region.
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.
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