Gold price flat lines below $3,400; looks to Fed for some meaningful impetus

Gold price struggles to gain traction as traders remain on the sidelines ahead of the Fed rate decision.
The USD retreats from the weekly high amid Fed rate cut bets and lends support to the commodity.
Trade-related uncertainties and rising geopolitical tensions further benefit the safe-haven XAU/USD.

Gold price (XAU/USD) extends its sideways consolidative price move for the second consecutive day and remains below the $3,400 mark through the Asian session on Wednesday. Traders now seem reluctant and opt to wait for more cues about the Federal Reserve's (Fed) rate-cut path before placing fresh directional bets around the non-yielding yellow metal. Hence, the focus will remain glued to the outcome of a two-day FOMC meeting, due later today, which, in turn, will influence the US Dollar (USD) price dynamics and determine the near-term trajectory for the commodity.

Heading into the key central bank event risk, the USD erodes a part of Tuesday's strong gains amid the growing acceptance that the US central bank would resume its rate-cutting cycle in September. Apart from this, rising geopolitical tensions in the Middle East, along with persistent trade-related uncertainties, continue to weigh on investors' sentiment and should help limit deeper losses for the safe-haven Gold price. Hence, it will be prudent to wait for strong follow-through selling before positioning for an extension of this week's retracement slide from a nearly two-month high.

Daily Digest Market Movers: Gold price bulls await Fed policy update before placing fresh bets

Investor attention remains firmly on the upcoming Federal Reserve interest rate decision, due later this Wednesday. The US central bank is expected to keep its benchmark rate unchanged amid concern that US President Donald Trump's tariffs could push up consumer prices.
Hence, the accompanying policy statement, which includes the updated “dots plot”, and Fed Chair Jerome Powell's comments during the post-meeting press conference will be scrutinized closely for cues about the future rate-cut path. The outlook, in turn, should influence the Gold price.
Heading into the key central bank event risk, the disappointing US macro data released on Tuesday pointed to a softening economy and reaffirmed bets that the Fed will lower borrowing costs in September. This keeps a lid on the overnight US Dollar rally to the weekly peak.
The US Census Bureau reported that Retail Sales declined by 0.9% in May compared to a contraction of 0.7% expected and a 0.1% dip in April. Moreover, US Industrial Production fell short of estimates and contracted 0.2% in May following a revised 0.1% rise a month earlier.
Meanwhile, the conflict and continued aerial exchanges between Israel and Iran continued for the sixth straight day. Adding to this, Trump ramped up his rhetoric and demanded Iran’s unconditional surrender, fueling speculations over possible US involvement in the war.
On the trade-related front, Trump told reporters on board Air Force One that tariffs on the Pharma sector are 'coming soon.' This adds a layer of uncertainty ahead of the July 9 deadline for higher reciprocal US tariffs and continues to weigh on investors' sentiment.

Gold price constructive technical setup suggests that the path of least resistance is to the upside

From a technical perspective, the formation of an ascending channel points to a well-established short-term uptrend. Adding to this, positive oscillators on the daily chart suggest that any intraday slide might still be seen as a buying opportunity, which should help limit the downside for the Gold price near the $3,340-3,335 area, or the lower boundary of the trend-channel. A convincing break below the latter, however, would negate the positive outlook and shift the bias in favor of bearish traders.

On the flip side, the $3,400 mark might continue to act as an immediate hurdle, above which the Gold price could climb to the $3,434-3,435 region. Some follow-through buying, leading to a subsequent strength beyond the $3,451-3,452 area, or the multi-week top touched on Monday, should allow the Gold price to challenge the all-time peak, around the $3,500 psychological mark touched in April. The said handle coincides with the ascending channel barrier, which if cleared will be seen as a fresh trigger for bulls.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.