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Gold rebounds to near $4,350 on weaker US Dollar, falling oil prices

  • Gold price recovers to around $4,345 in Friday’s early Asian session. 
  • Oil prices extended their fall into a second straight day, easing inflation concerns. 
  • The Fed raised rates on Wednesday and flagged ‌more hikes in the coming months.  

Gold price (XAU/USD) rises to near $4,345 during the early Asian session on Friday. The precious metal rebounds from a six-week low amid falling oil prices and a weaker US Dollar (USD). Traders continue to assess the latest Federal Reserve (Fed) rate hike and policy cues.

Crude oil prices dropped to a one-week low on signs that supply disruptions in the Middle East could ease, with Saudi Arabia seeking to partially restore flows through a key pipeline. 

Additionally, US President Donald Trump is expected ‌to meet Gulf leaders on the sidelines of the UN General Assembly in New York next Tuesday to discuss the next steps in the Iran war. These developments have eased inflation concerns and could provide some support to the yellow metal in the near term. 

“We’ve been tied very closely to an inverse relationship with energy prices based on those inflationary pressures ... Energy prices are down fairly dramatically today. So it’s these lower energy prices that are removing some of that pressure on the gold market,” ‌said David Meger, director of metals trading at High Ridge Futures.

On the other hand, the prospect of further US interest rate hikes could exert some selling pressure on the Gold price. Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.

The US Federal Reserve (Fed) on Wednesday raised the interest rate by 25 basis points (bps) to the range of 3.75% and 4.00%, and Fed officials’ projections still point to at least one more increase this year.

Traders are now pricing in nearly a 53.1% chance of another US rate hike when the central bankers meet next in October, compared with nearly 44% a day ago, according to the CME FedWatch tool.

Gold retreats as stronger USD and higher US yields weigh on sentiment

Strategists at OCBC note that gold “reversed lower after the FOMC as the stronger USD and rise in UST yields weighed on sentiment,” with “the 2y yield came close to 4.75% while the 10y returned to around 5%, keeping the opportunity-cost channel firmly in focus.” They add that “near term, elevated yields and a firmer USD may continue to cap gold, but the Fed outcome does not necessarily undermine the broader mediumterm case.” With “a fairly hawkish rate path already in the price,” OCBC argues that “softer US data could pull yields and the dollar lower again,” potentially restoring support for the metal over the medium term.

Chart Analysis XAU/USD

Technical Analysis: Gold holds above the 100-day SMA, with neutral RSI momentum

In the daily chart, XAU/USD holds a constructive near-term bias, with price above the 100-day moving average (MA) and comfortably above the lower Bollinger Band, suggesting buyers still defend the broader uptrend. However, the latest Bollinger middle band sits overhead as immediate resistance, while the Relative Strength Index (RSI) at 48.58 hovers near neutral, hinting at a consolidative phase rather than a strong directional push.

On the topside, initial resistance is located at the Bollinger simple moving average (SMA) center line near $4,435, followed by the upper Bollinger Band around $4,678, where upside momentum could start to look stretched. On the downside, soft support emerges at the 100-day MA around $4,325, with a deeper bearish extension likely finding demand closer to the lower Bollinger Band near $4,190, a zone that would need to hold to preserve the current bullish structure.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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