Market Data 
- Gold price edges lower on Wednesday as a positive risk tone undermines safe-haven assets.
- Sliding US bond yields cap the USD recovery from over a one-month low and act as a tailwind.
- Traders also seem reluctant to place directional bets ahead of the crucial FOMC policy decision.
Gold price (XAU/USD) sticks to modest intraday losses through the early European session on Wednesday, though it lacks any follow-through selling and remains close to a multi-month peak touched last week. A generally positive tone around the equity markets is seen as a key factor acting as a headwind for the safe-haven precious metal. That said, bets that the Federal Reserve (Fed) will keep cutting rates in 2025, a fresh leg down in the US Treasury bond yields and modest US Dollar (USD) downtick act as a tailwind for the non-yielding yellow metal.
Apart from this, concerns about US President Donald Trump’s tariff plans might contribute to limiting losses for the Gold price. Traders also seem reluctant to place aggressive bets and opt to move to wait for more cues about the Fed’s rate cut path. Hence, the focus will remain glued to the outcome of a two-day FOMC monetary policy meeting, due to be announced later during the US session. The crucial Fed decision will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the commodity.
Gold price is weighed down by receding safe-haven demand; Fed rate cut bets help limit losses
- Calmer conditions across global markets dent demand for traditional safe-haven assets and fail to assist the Gold price to build on Tuesday’s positive move ahead of the key central bank event risk.
- The yield on the benchmark 10-year US government bond languishes near a one-month trough, capping the overnight US Dollar recovery and acting as a tailwind for the non-yielding yellow metal.
- Investors remain concerned about the potential economic fallout from US President Donald Trump’s plans to impose tariffs on imported computer chips, pharmaceuticals, aluminum, steel and copper.
- The move, aimed at pushing the companies to boost production in the US, could trigger a fresh wave of global trade wars and might continue to act as a tailwind for the safe-haven precious metal.
- Data released on Tuesday by the US Census Bureau showed that Durable Goods Orders declined 2.2% in December, compared to a 2% fall in November and market expectations for a 0.8% rise.
- Separately, the Conference Board (CB) reported that the Consumer Confidence Index dropped to 104.1 in January from 109.5 in the previous month and the Present Situation Index fell to 134.3.
- Meanwhile, the market focus remains glued to the Federal Reserve’s policy decision first meeting this year, which will drive the US Dollar demand and provide a fresh impetus to the XAU/USD.
Gold price weakness below the $2,755-2,753 support could be seen as a buying opportunity
From a technical perspective, the recent breakout through the $2,720-2,725 horizontal barrier and positive oscillators on the daily chart suggest that the path of least resistance for the Gold price remains to the upside. A subsequent move above the $2,772-2,773 area will reaffirm the constructive outlook and lift the XAU/USD beyond the $2,786 area, or the highest level since October 2024 touched last Friday, towards the all-time peak, near the $2,790 zone. Some follow-through buying, leading to a strength beyond the $2,800 mark, will be seen as a fresh trigger for bullish traders and pave the way for an extension of a well-established uptrend witnessed over the past month or so.
On the flip side, weakness below the $2,755-2,753 immediate support might continue to attract some buyers and remain limited near the weekly swing low, around the $2,730 area touched on Monday. Some follow-through selling below the $2,725-2,720 resistance-turned-support could pave the way for deeper losses and drag the Gold price to the $2,707-2,705 area en route to the $2,684 region.
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.
