Gold (XAU/USD) sticks to modest intraday losses through the early European session on Wednesday, albeit it lacks bearish conviction and remains confined within the previous day’s broader trading range. Hotter-than-expected US consumer inflation figures released on Tuesday reaffirmed market expectations for a more hawkish US Federal Reserve (Fed). This, along with geopolitical uncertainties, helps the US Dollar (USD) to preserve Tuesday’s gains to its highest level in over one week and keeps the precious metal depressed for the second straight day.
The US Bureau of Labor Statistics (BLS) reported on Tuesday that the headline US Consumer Price Index (CPI) rose from 3.3% in the prior month to 3.8% over the 12 months through April, or a nearly three-year high. Adding to this, the core gauge, excluding food and energy, rose 0.4% in April and the yearly rate moved up to a seven-month high of 2.8%, further away from the Fed’s 2% target. Traders were quick to react and are now pricing in a roughly 35% chance that the US central bank will hike borrowing costs by the year-end.
This comes on top of concerns that consumer prices are likely to keep rising amid elevated Crude Oil prices, bolstered by the US-Iran stalemate, and pushed US Treasury bond yields higher. In fact, the 30-year US government bond yield briefly touched the 5.0% mark, putting it within reach of the yearly peak, while the rate-sensitive two-year US government bond yield remains close to the 4% threshold. This, in turn, should act as a tailwind for the USD and turns out to be another factor undermining demand for the non-yielding Gold.
Meanwhile, prospects for a US-Iran peace deal diminished further after US President Donald Trump said that the ceasefire was “unbelievably weak” and on “massive life support.” Furthermore, Iran rejected a US proposal to end a more than two-month-old conflict amid disagreements over Tehran’s nuclear program and a standoff over the critical Strait of Hormuz. This keeps geopolitical risks in play and might continue to benefit the USD’s reserve currency status, validating the near-term negative outlook for the Gold price.
The lack of follow-through selling, however, warrants some caution before positioning for an extension of the retracement slide from a three-week high, touched on Tuesday. Traders now seem hesitant and might opt to move to the sidelines ahead of a two-day meeting between Trump and China’s President Xi Jinping. Traders on Wednesday will further take cues from the release of the US Producer Price Index (PPI) and the incoming geopolitical headlines, which will drive the USD and provide a short-term impetus to the Gold price.
XAU/USD 1-hour chart
Gold bulls seem hesitant while below $4,765-$4,770 horizontal resistance
From a technical perspective, the previous day’s pullback from the $4,765-$4,770 region constituted the formation of a bearish double-top pattern on the 1-hour chart. The subsequent fall, however, showed resilience near the 200-hour Simple Moving Average (SMA), suggesting that dip-buying interest persists despite the recent consolidation. Moreover, the Moving Average Convergence Divergence (MACD) histogram remains slightly positive, while the Relative Strength Index (RSI) hovers just below the 50 line. This hints at subdued but stabilizing momentum rather than a decisive trend.
Hence, it will be prudent to wait for some follow-through buying and a sustained strength above the $4,770 resistance zone before traders start positioning for any further appreciating move. On the downside, immediate support is seen at the 200-period SMA near $4,655.51, where a break would expose deeper corrective pressure toward prior swing lows.
(The technical analysis of this story was written with the help of an AI tool.)
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.
