Gold struggles to capitalize on intraday gains as traders opt to wait for FOMC meeting this week
- Gold price regains positive traction on Monday as geopolitical risks revive safe-haven demand.
- The USD remains depressed below a multi-week high and further benefits the precious metal.
- The market focus now shifts to the crucial two-day FOMC policy meeting starting on Tuesday.
Gold price (XAU/USD) maintains its bid tone heading into the European session, though it lacks follow-through as traders opt to wait for more cues about the Federal Reserve’s (Fed) rate-hike path before placing directional bets. Hence, the focus will remain glued to the outcome of a two-day FOMC policy meeting on Wednesday, which will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide some meaningful impetus to the non-yielding yellow metal.
In the meantime, US President Donald Trump’s erratic trade policies keep investors on the edge. Moreover, the protracted Russia-Ukraine war and an escalation of the Middle East conflict keep the geopolitical risk in play, which, in turn, acts as a tailwind for the safe-haven Gold price. Meanwhile, the US Dollar (USD) remains depressed below a multi-week high amid the economic uncertainty and Fed rate cut bets. This further seems to lend support to the XAU/USD pair.
Daily Digest Market Movers: Gold price draws support from renewed geopolitical risks and modest USD weakness
- In an interview broadcast on Sunday, Russian President Vladimir Putin stated that Russia has the means and strength to bring the Ukraine conflict to a logical conclusion. This comes ahead of Putin’s unilaterally declared three-day ceasefire over May 8-10. Russia, however, had dismissed proposals from Ukraine and the US for an unconditional 30-day ceasefire.
- Israeli Prime Minister Benjamin Netanyahu promised to respond to Yemen’s Houthi rebels ballistic missile attack that hit Ben Gurion International Airport on Sunday and added that Iran would also face consequences from the strike. Responding to this, Iran’s Defence Minister Aziz Nasirzadeh said that Tehran would strike back if the US or Israel attacked.
- US President Donald Trump on Sunday announced a 100% tariff on all movies produced in foreign countries. His unpredictable trade stance unsettles investors, driving safe-haven flows that help gold extend its rebound from last week’s low near the $3,200 round figure.
- Traders trimmed bets that the Federal Reserve will cut rates as soon as in June following the better-than-expected release of the US jobs data on Friday, which showed that the economy added 177K jobs in April against 130K expected. Additional details revealed that the Unemployment Rate held steady at 4.2%, pointing to a still resilient US labor market.
- The US Dollar, however, struggles to attract any meaningful buyers and remains depressed below a multi-week high touched last Thursday amid heightened economic uncertainty on the back of Trump’s tariffs. This lends additional support to the XAU/USD pair ahead of the highly-anticipated two-day FOMC policy meeting starting on Tuesday.
- Furthermore, speeches from influential Fed officials later this week will be scrutinized for insights into the future monetary policy trajectory and drive the USD demand. In the meantime, the US ISM Services PMI on Monday, which, along with trade-related developments and geopolitical headlines, could produce some impetus to the XAU/USD pair on Monday.
Gold price remains below the $3,260-3,265 horizontal support breakpoint, now turned resistance
From a technical perspective, the precious metal last week showed some resilience below the 50% Fibonacci retracement level of the move higher from the vicinity of mid-$2,900s. The subsequent bounce from the $3,200 neighborhood warrants some caution before positioning for an extension of the recent pullback from the $3,500 mark, or the all-time peak touched in April. Any further move up, however, is more likely to confront stiff resistance near the $3,260-3,265 horizontal support breakpoint, now turned resistance. A sustained strength beyond the latter, however, could lift the Gold price beyond the $3,300 mark, towards the $3,348-$3,350 supply zone en route to the $3,367-$3,368 intermediate hurdle and the $3,400 round figure.
On the flip side, weakness below the $3,225 region (50% Fibo. level) might continue to find some support ahead of the $3,200 mark. A convincing break below the said handle would make the Gold price vulnerable to accelerate the downfall towards the $3,170-3,165 confluence, comprising the 61.8% Fibo. level and the 200-period Simple Moving Average (SMA) on the 4-hour chart. Some follow-through selling will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
