Gold struggles near one-week low as traders await Trump-Xi meeting amid Fed hike bets
- Gold remains depressed near a one-week trough, touched earlier this Thursday.
- Fed rate hike bets and elevated US bond yields might continue to support the USD.
- Geopolitical risks also favor USD bulls, backing the case for a further XAU/USD slide.
Gold (XAU/USD) sticks to a negative bias for the second straight day, trading below the $4,300 mark or a one-week low during the first half of the European session as traders await a crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping. Expectations for a major announcement are low, though market players will look for any progress on rare earths, technology restrictions, and an extension of the current US-China truce. Nevertheless, the incoming headlines could infuse volatility and provide some impetus to the precious metal.
Any intraday move up, however, is likely to remain capped amid rising US Federal Reserve (Fed) rate hike bets, which tend to undermine the non-yielding Gold. According to CME Group's FedWatch Tool, traders are now pricing in a nearly 70% chance that the US central bank will raise borrowing costs again in October. The expectations were lifted by a private survey, which showed that US business activity accelerated for a fourth straight month in September. In fact, the S&P Global flash Composite PMI Output Index rose from 56.0 in August to 58.4, the highest level since July 2021.
Meanwhile, tensions between the US and Iran took center stage at the United Nations General Assembly (UNGA) after Trump stated that Iran faces a choice of diplomacy or total destruction. In response, Iran's President Masoud Pezeshkian said that Iran will never bend the knee, but is ready for a diplomatic solution. Pezeshkian also insisted that any deal would have to include an end to the US blockade, targeting Iranian ports and maritime shipping in and around the Strait of Hormuz. This led to a 3% rally in crude oil prices, reigniting inflation fears and underpinning prospects for further Fed tightening.
The growing acceptance that the US central bank will stick to its hawkish stance pushed the yield on the benchmark 10-year US Treasury bond to its highest level since July 2007 and lifted the US Dollar (USD) to a nearly two-month high on Wednesday. This, in turn, backs the case for a further near-term depreciating move for gold, though the subdued price action warrants some caution for aggressive bearish traders. Hence, weakness below the monthly swing low, around the $4,235 area, touched last Wednesday, is needed to reaffirm the negative outlook and pave the way for deeper losses.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair maintains a capped tone below the 100-day Exponential Moving Average (EMA) and the 50% retracement level. Meanwhile, a negative Moving Average Convergence Divergence (MACD) reading and a mid-range Relative Strength Index (RSI) around 44.6 hint that bullish momentum has faded. Hence, any attempted recovery move is likely to be sold into while the Gold price remains under the clustered resistance.
On the downside, the 61.8% Fibonacci retracement at $4,227 offers nearby structural support, ahead of the 78.6% level at $4,101 and the prior swing floor at $3,940. On the topside, immediate resistance aligns at the 50% retracement at $4,316, followed by the 100-day EMA at $4,359 and the 38.2% retracement at $4,405. A sustained break above this cluster would be needed to ease the bearish bias and open the way toward $4,515 and $4,693.
(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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
