- Gold remains steady ahead of the May release of US New Home Sales data as investors and policymakers monitor the health of the US economy.
- Monetary policy, inflation, and interest rates come back into focus as Fed Powell testifies before the Senate Banking Committee.
- XAU/USD edges lower as risk sentiment continues to support risk-sensitive assets, pushing prices back below the 50-day Simple Moving Average.
Gold (XAU/USD) is edging lower on Wednesday, as markets continue to show signs of optimism following Tuesday’s ceasefire between Israel and Iran.
At the time of writing, Gold is holding above $3,300 as market focus shifts to key US macroeconomic releases and the second day of testimony from Federal Reserve Chair Jerome Powell.
With tensions in the Middle East appearing to remain subdued, Wednesday’s economic data releases and comments from Powell could serve as an additional catalyst for Bullion.
US New Home Sales data for May, due at 14:00 GMT, could serve as an additional catalyst for the Gold price. This report provides clues into how strongly the US housing market appears to be holding up.
Meanwhile, Jerome Powell returns to Capitol Hill to speak before the US Senate Committee on Banking, Housing, and Urban Affairs, where any shift in tone or mention of inflation risks could drive interest rate-sensitive assets, including Gold.
Daily digest market movers: Gold price drivers, Fed expectations, risks ahead
- Federal Reserve Chair Powell continues his two-day testimony to Congress on Wednesday, following his appearance before Congress the previous day, during which he answered questions on the economy, inflation, and the potential timing of rate cuts. For Gold, which moves inversely to interest rates and the US Dollar, Powell’s comments are particularly influential.
- Powell reiterated that the Fed is in “no hurry to cut rates,” noting that inflation data has been uneven and that tariff-related price pressures are likely to appear in the data for June or July.
- Powell’s tone remained consistent with the June 18 Federal Open Market Committee (FOMC) meeting, where policymakers projected two rate cuts in the latter part of the year. Despite that, market participants remain divided on the timing and certainty of those cuts, with pricing still sensitive to incoming data.
- Powell also added, “If it turns out that inflation pressures do remain contained, we will get to a place where we cut rates sooner rather than later, but I wouldn’t want to point to a particular meeting.” He clarified that a meaningful deterioration in the labor market would also affect the Fed’s decision-making, but emphasized, “We don’t need to be in any rush because the economy is still strong, the labor market is strong.” This underscores the data-dependent stance, keeping Gold sensitive to incoming figures.
- US consumer confidence data released Tuesday added to that uncertainty. The Conference Board’s Consumer Confidence index fell to 93.0 in June, down from 98.4 in May. A more cautious consumer outlook could imply softer spending ahead, which may weigh on the Fed’s growth projections and influence the timing of interest rate adjustments
- Geopolitical risk has abated for now, with the Israel-Iran ceasefire holding for a second consecutive day. While the situation remains fragile, the lack of new escalations has drawn safe-haven flows away from Gold, placing more emphasis on macroeconomic and policy factors for direction.
- Looking ahead, the release of US Personal Consumption Expenditures (PCE) data, the Fed’s preferred inflation gauge, on Friday will be critical. A soft print could revive expectations for a near-term rate cut and offer a fresh tailwind for Gold.
Gold technical analysis: XAU/USD falls below the 50-day SMA, remainsabove $3,300
Gold price is currently trading above the key psychological support level of $3,300, with the Relative Strength Index (RSI) indicator flattening near the 50 mark on the daily chart, suggesting a lack of momentum and indecision among traders.
At the time of writing, XAU/USD has fallen below the 50-day Simple Moving Average (SMA), providing resistance at $3,325.
Gold (XAU/USD) daily chart
For the price to extend its recovery, a move above the 20-day SMA at $3,355 is required. If bulls succeed in clearing this barrier, the next level of resistance will likely reside at the $3,400 psychological level.
However, if risk appetite improves, demand for safe havens could continue to decline in the short term. If the Gold price faces a deeper pullback below the $3,300 round level, the midpoint of the rally from the April 7 low to the April 22 high (the 50% Fibonacci retracement level) could come into play as support at $3,228.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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