Introduction to Gold Market
The gold price has been consolidating below $3,400 as investors await clarity on whether the US will strike Iran. The Federal Reserve (Fed) held interest rates steady on Wednesday and raised the interest rate target for the next two years. The gold price remains well-supported by the 20-day Exponential Moving Average (EMA).
Current Market Trends
The gold price is trading in a limited range below the round-level resistance of $3,400 during European trading hours. The upside in the yellow metal appears to have been capped by the upwardly revised interest rate target for 2026 and 2027 by the Federal Reserve. The Fed warned of increasing upside risks to inflation due to the imposition of tariff policy by US President Donald Trump, raising the inflation target for 2026 and 2027 to 3.6% and 3.4%, respectively.
Impact of Geopolitical Tensions
Gold performs firmly in a high-inflation environment; however, higher interest rates by the Fed for a longer period bode poorly for non-yielding assets. On the downside, the yellow metal remains well-supported amid tensions escalating in the Middle East region. Financial market participants have become concerned over the future of Iran’s economy as the United States considers striking Tehran, which is already battling a war with Israel.
Technical Analysis
Gold price trades in an Ascending Triangle formation on a daily timeframe, which indicates volatility contraction. The horizontal resistance of the above-mentioned chart pattern is plotted from the April 22 high around $3,500, while the upward-sloping trendline is placed from the April 7 low of $2,957. The 20-day EMA continues to provide support to the gold price around $3,350. The 14-day Relative Strength Index (RSI) struggles to break above 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.
Future Projections
Looking up, the gold price would enter uncharted territory after breaking above the psychological level of $3,500 decisively. Potential resistances would be $3,550 and $3,600. Alternatively, a downside move by the gold price below the May 29 low of $3,245 would drag it towards the round-level support of $3,200, followed by the May 15 low at $3,121.
Gold FAQs
Gold has played a key role in human 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 and Gold Reserves
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.
Correlation 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.
Factors Affecting Gold Price
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.
Conclusion
In conclusion, the gold price is currently consolidating below $3,400 as investors await clarity on whether the US will strike Iran. The Federal Reserve’s decision to hold interest rates steady and raise the interest rate target for the next two years has capped the upside in the yellow metal. However, gold remains well-supported by the 20-day EMA and geopolitical tensions in the Middle East region. As a safe-haven asset, gold is widely seen as a hedge against inflation and depreciating currencies. Its price can move due to a wide range of factors, including geopolitical instability, interest rates, and the US Dollar.
