Gold (XAU/USD) remains stable on Wednesday following a 1.85% decline a day earlier. A slowdown in the global bond sell-off has eased upward pressure on Treasury yields, providing support for the non-yielding metal. Currently, XAU/USD is trading around $4,492, having touched an intraday low of approximately $4,453, marking its lowest point since March 30.
The US 10-year Treasury yield has decreased to roughly 4.631% after reaching a 16-month peak of 4.687% on Tuesday, and the 30-year yield has dipped to 5.166%, following a high of 5.200%, the highest since July 2007.
Despite this modest pullback in yields, they remain significantly high. The ongoing US-Iran war has sparked concerns over inflation driven by rising oil prices, compelling major central banks, including the Federal Reserve, to maintain tighter monetary policies and potentially raise interest rates.
A higher interest rate climate typically puts downward pressure on non-yielding assets like gold, as rising Treasury yields increase the opportunity cost associated with holding gold. This continues to pose a significant challenge for the precious metal.
Market sentiment is increasingly leaning toward the possibility of a Fed rate hike before the year ends. According to the CME FedWatch Tool, there is now nearly a 40% likelihood of a 25-basis-point increase by December, up from approximately 29% just a week ago.
Traders are keenly awaiting the Federal Reserve’s April meeting minutes which will provide further insights into the anticipated interest rate trajectory and how policymakers address inflation concerns stemming from elevated energy prices.
Philadelphia Fed President Anna Paulson remarked on Tuesday that current policy is "mildly restrictive," assisting in controlling inflation without destabilising the labour market. She mentioned that an "appropriate rate increase" might be warranted if growth exceeds expectations or if inflation threats emerge.
On the geopolitical side, ongoing tensions regarding the US-Iran negotiations, particularly concerning Iran’s nuclear programme, are being monitored closely, particularly as indirect talks remain stalled.
Simultaneously, the US Senate is advancing a War Powers Resolution aimed at limiting President Trump’s ability to launch military action against Iran without Congressional approval.
This uncertainty around the US-Iran situation, alongside hawkish expectations from the Fed, has provided solid support to the US dollar, exerting further pressure on gold. The US Dollar Index (DXY), which gauges the dollar’s strength against a basket of six major currencies, is hovering around 99.36, near its six-week highs.
Technical Analysis: XAU/USD Faces Continued Downward Pressure
On daily charts, XAU/USD displays a bearish near-term trend, trading below the 20-period Bollinger Simple Moving Average (SMA) at approximately $4,625 and just above the lower Bollinger band support around $4,465. The Relative Strength Index (RSI) has dropped to nearly 38, and the Moving Average Convergence Divergence (MACD) remains negative, indicating weakening momentum and leaving gold susceptible to further declines.
For resistance, the immediate level is at the Bollinger mid-line near $4,625, followed by the upper band around $4,785, with a significant resistance point at the $5,000 mark. Conversely, key support is seen close to the lower Bollinger band at around $4,465, prior to a horizontal support level at $4,350, where any breach may solidify a bearish sentiment.
Gold FAQs
1. What is gold’s historical significance?
Gold has been a vital asset throughout history, valued for its beauty, used in jewellery, and as a reliable store of value during turbulent times. It’s often viewed as a safe-haven asset and a hedge against inflation and currency depreciation.
2. Who holds the most gold reserves?
Central banks are the largest holders of gold. In an effort to buttress their currencies, they diversify reserves by accumulating gold. In 2022, central banks added 1,136 tonnes of gold, marking the highest annual purchase on record, largely driven by increased reserves from emerging economies such as China, India, and Turkey.
3. How does gold correlate with the US dollar?
Gold typically has an inverse relationship with both the US dollar and US Treasuries. When the dollar weakens, gold prices generally rise, as it provides investors with a means to diversify their assets during instability. Conversely, a robust stock market may dampen gold prices, while market sell-offs can prompt an uptick in gold investment.
4. What influences the price of gold?
Gold prices are affected by numerous factors, including geopolitical instability, recession fears, interest rates, and movements in the US dollar. Generally, gold prices appreciate with falling interest rates, while higher rates usually exert downward pressure. An increasingly strong dollar tends to suppress gold values, whereas a weaker dollar can propel prices higher.
