Gold (XAU/USD) gains strong follow-through traction for the second straight day and rallies to a nearly two-week top, around the $4,141 area during the Asian session on Wednesday. The latest optimism over a potential US-Iran deal and the reopening of the Strait of Hormuz, along with receding US Federal Reserve (Fed) rate-hike bets, prompts some follow-through US Dollar (USD) selling and benefits the commodity.
Despite mixed signals, investors remain hopeful about a diplomatic resolution to end the five-month-old US-Iran war. In fact, US Treasury Secretary Scott Bessent said that the US could reach a deal with Iran to reopen the Strait of Hormuz by Wednesday and move toward a more normalized position in this conflict. Adding to this, Axios, citing sources, reported that the US, Iran, and Oman are closing in on an interim agreement to reopen the strategic waterway. Furthermore, the OPEC+ decision on Sunday to increase production from September helps ease supply concerns and dragging crude oil prices to a fresh low since June 13. This, in turn, alleviates inflation concerns and hawkish Fed expectations, which are seen exerting pressure on the USD and supporting the non-yielding Gold.
Traders, however, are still pricing in a greater chance that the US central bank will raise borrowing costs by the end of this year amid signs that the US labor market is beginning to find its footing. The US Job Openings and Labor Turnover Survey (JOLTS) released on Tuesday by the Bureau of Labor Statistics showed that the number of job openings edged lower to 7.36 million but remained above levels seen last year. Adding to this, Kansas City Fed President Jeff Schmid and Philadelphia Fed President Anna Paulson backed the case for tighter monetary policy and higher interest rates to fight inflation. This might hold back USD bears from placing aggressive bets as the focus remains on the official jobs data – popularly known as the Nonfarm Payrolls (NFP) report on Friday.
In the meantime, Wednesday’s US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI – will be watched for short-term opportunities later during the North American session. Apart from this, fresh developments surrounding the Middle East crisis should provide some impetus to the USD and the Gold price. The aforementioned fundamental backdrop, meanwhile, seems tilted in favor of XAU/USD bulls and supports prospects for a further intraday appreciating move.
XAU/USD 4-hour chart
Technical Analysis: Gold climb further as breakout above 200-EMA on H4 comes into play
From a technical perspective, an intraday breakout through the 200-period Exponential Moving Average (EMA) hurdle on the 4-hour chart validates the positive outlook. Adding to this, the Relative Strength Index around 65 suggests firm bullish momentum, while the Moving Average Convergence Divergence (MACD) histogram remains positive, hinting that buyers still retain control in the short term.
However, the current up-move could start to struggle above $4,130, with overbought signals on momentum gauges likely to cap the upside if buying enthusiasm fades. On the downside, immediate support is seen at the 200-period EMA near $4,115, where a break would expose a deeper correction toward the daily low, near $4,065, en route to the $4,043-$4,042 region, the $4,020 level and the $4,000 psychological mark.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
