Gold (XAU/USD) rallies on Wednesday as a softer US Dollar (USD) and a sharp pullback in long-term US Treasury yields help the metal break above its week-old trading range and climb to its highest level since June 4. At the time of writing, XAU/USD trades around $4,490, up more than 3.5% on the day.
The US benchmark 10-year yield is down more than 5 basis points (bps) and the 30-year yield nearly 9 bps lower after the US Treasury announced that it will increase the size of its liquidity-support buybacks for longer-dated government securities.
The US Dollar Index (DXY), which gauges the Greenback’s value against a basket of six major currencies, trades near 98.80, down 0.87% on the day and touching its lowest level since May 29.
A weaker US Dollar makes Gold cheaper for buyers using other currencies, while falling Treasury yields reduce the opportunity cost of holding the non-yielding metal.
Looking ahead, Gold’s near-term direction hinges on Federal Reserve (Fed) signals and developments in the Middle East amid a sparse US economic calendar.
The minutes of the Federal Open Market Committee’s (FOMC) July meeting, due at 18:00 GMT, will be closely watched as uncertainty over the Fed’s interest-rate outlook persists.
Since the July meeting, weaker-than-expected labour market and inflation data have reduced the likelihood of an interest-rate hike at the upcoming meeting. Traders have subsequently trimmed the probability of a September hike to just 32%, according to the CME FedWatch tool.
“Recent softer US economic data has lowered the probability of additional tightening, easing a major headwind for the yellow metal. Gold is also benefiting from concerns over rising US government debt, renewed investor demand and stronger central-bank buying, particularly from China,” said Antreas Themistokleous, trading content specialist at Exness.
However, the energy shock stemming from the war in the Middle East keeps inflation risks tilted to the upside, supporting expectations that the Fed may eventually need to raise interest rates and clouding the outlook over whether Gold’s recent recovery can be sustained.
Technical analysis: XAU/USD reclaims the 100-day SMA
On the daily chart, XAU/USD holds a bullish near-term bias as it extends above the 100-day Simple Moving Average (MA) at $4,381. Momentum remains constructive, with the Relative Strength Index (RSI) at 63 staying in positive territory while the Moving Average Convergence Divergence (MACD) histogram stays above zero, hinting that buyers retain control despite signs of a moderation in upside strength.
On the topside, initial resistance is defined by the upper Bollinger band at $4,528, where recent advances could start to face profit-taking. On the downside, immediate support emerges at the 100-day MA at $4,381, followed by the Bollinger middle band around $4,222.
A deeper pullback would expose a more solid horizontal floor at $4,000, ahead of the lower Bollinger band near $3,916.
(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.
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