Gold (XAU/USD) has regained positive traction after a brief overnight pullback from its record high, supported by a mix of monetary policy expectations, geopolitical risks, and safe-haven demand.
As of the Asian session on Wednesday, the precious metal is attracting dip-buyers near the $3,620 area, indicating that the market sentiment remains cautiously bullish despite short-term retracement pressures. Logirium professionals simplify the subject with a detailed and informative piece.
Fed Rate Cut Expectations Provide Key Support
A major driver of Gold’s resilience is the growing market belief that the US Federal Reserve (Fed) will implement interest rate cuts in the near term. Following an unexpectedly weak US jobs report, markets now anticipate three rate reductions by the end of the year, reflecting a softening labor market and potential economic slowdown.
The CME Group FedWatch Tool highlights the probability of a 50-basis-point cut at the upcoming FOMC meeting, although the prevailing expectation is for gradual easing. Lower borrowing costs make non-yielding assets like Gold more attractive, as investors look for store-of-value instruments in a climate of potential USD weakness.
Geopolitical and Political Risks Boost Safe-Haven Demand
Geopolitical tensions and political uncertainties continue to support Gold as a safe-haven asset. In Europe, France’s Prime Minister Francois Bayrou resigned following a vote of no confidence, while in Japan, Prime Minister Shigeru Ishiba announced his departure as LDP President, increasing political volatility across major economies.
In the Middle East, Israel’s air strike on Hamas leadership in Doha, Qatar, drew widespread condemnation. Qatar, a key mediator, stated its right to respond, raising the risk of regional escalation.
Meanwhile, in Eastern Europe, Poland placed its air defenses on high alert following Russia’s heaviest air assaults on Ukraine, with a suspected Russian drone incursion into Polish NATO airspace, further amplifying risk-off sentiment that traditionally benefits Gold.
USD Dynamics and Market Sentiment
While Gold benefits from risk-off flows, the US Dollar (USD) has recovered from recent lows, limiting upside momentum for XAU/USD. The USD’s recovery is partly due to positioning trades ahead of the US Producer Price Index (PPI) release and court rulings that temporarily blocked the US President from removing Fed Governor Lisa Cook, easing concerns about the Fed’s independence.
At the same time, Wall Street indices posted record highs, which spilled over into Asian equity markets, reflecting a broadly positive risk tone. Such risk-on sentiment may temper Gold’s gains, as investors may allocate funds away from safe-haven assets during periods of equity market strength.
Nevertheless, the overall fundamental backdrop remains tilted in favor of Gold, suggesting that any corrective pullback may offer buying opportunities near key support levels.
Technical Analysis: Support and Resistance Levels
From a technical perspective, Gold’s daily Relative Strength Index (RSI) remains in overbought territory, implying the likelihood of short-term consolidation or a mild retracement.
Immediate support is found at the $3,600 round figure, followed by the weekly low near $3,580, which could act as a floor for bullish positions. Breaching this level might trigger a corrective slide toward intermediate support at $3,565-$3,560, eventually testing last Thursday’s swing low near $3,510.
On the upside, resistance emerges at $3,640-$3,645, ahead of the recent all-time high of $3,675. A successful breakout above this level could pave the way for Gold to challenge the $3,700 round figure, a critical psychological barrier.
That said, market participants are likely to exercise caution, and aggressive bullish positioning may be limited in the near term.
Upcoming Economic Data to Watch
Investors are now focused on US inflation metrics, starting with the Producer Price Index (PPI) today, followed by the Consumer Price Index (CPI) on Thursday. These economic indicators are expected to provide fresh impetus for both the USD and Gold price dynamics.
The PPI could influence short-term USD strength, impacting the XAU/USD pair, while the CPI will play a pivotal role in determining market expectations for the Fed’s next move. Any deviation from consensus forecasts could trigger sharp movements in both precious metals and currencies, highlighting the need for active monitoring.
Conclusion: Gold Bulls Maintain the Edge
In summary, Gold’s positive traction amid Fed rate cut expectations, safe-haven demand, and geopolitical risks underscores the complex interplay between monetary policy, risk sentiment, and technical dynamics. While USD strength and equity market optimism may temporarily limit gains, the broader fundamental and technical backdrop favors the bullish case for Gold.
Traders are likely to view any corrective pullback as an opportunity to buy near key support levels, while resistance around $3,640-$3,700 will be closely watched for breakout potential. With upcoming US inflation data and persistent geopolitical uncertainty, Gold’s trajectory in the short to medium term remains favorably biased for bullish positions, making XAU/USD a key focus for both traders and investors.
