Gold price (XAU/USD) dives to a fresh two-week low during the early European session on Tuesday and seems vulnerable to slide further amid the risk-on impulse. News of the Iran-Israel ceasefire boosts investors’ confidence, which is evident from a strong rally across the global equity markets and turns out to be a key factor denting demand for the safe-haven bullion. Apart from this, the intraday downfall could further be attributed to some technical selling following the recent repeated failures near the $3,400 mark and a breakdown below short-term ascending channel support.
Meanwhile, the mixed US PMI data and dovish remarks from Federal Reserve (Fed) officials fueled speculations about the possibility of a rate cut in July. This, along with concerns about the worsening US fiscal condition and US President Donald Trump’s erratic trade policies, prompts some follow-through US Dollar (USD) selling for the second straight day. This, in turn, could offer some support to the Gold price. Traders might also opt to wait for Fed Chair Jerome Powell’s testimony for cues about the rate-cut path and placing fresh directional bets around the non-yielding yellow metal.
From a technical perspective, the commodity now seems to have found acceptance below the 100-period Simple Moving Average (SMA) on the 4-hour chart and is looking to extend the fall below a short-term ascending channel support. Moreover, oscillators on the said chart have been gaining negative traction and back the case for a further intraday depreciating move. Some follow-through selling below the $3,323-3,322 intermediate support will reaffirm the outlook and drag the Gold price to sub-$3,300 levels.
On the flip side, any meaningful recovery beyond the $3,368-3,370 immediate hurdle is more likely to attract fresh sellers and remain capped near the $3,400 round figure. The latter should act as a key pivotal point, which if cleared decisively could lift the Gold price to the $3,434-3,435 area en route to the $3,451-3,452 zone, or a nearly two-month top touched last Monday. The subsequent move up could extend further towards challenging the all-time peak, around the $3,500 psychological mark.
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.
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