Gold (XAU/USD) rallies on Wednesday as a softer US Dollar (USD) and a sharp pullback in long-term US Treasury yields help the metal break above its week-old trading range and climb to its highest level since June 4. At the time of writing, XAU/USD trades around $4,490, up more than 3.5% on the day.
The US benchmark 10-year yield is down more than 5 basis points (bps), and the 30-year yield nearly 9 bps lower after the US Treasury announced that it will increase the size of its liquidity-support buybacks for longer-dated government securities.
The US Dollar Index (DXY), which gauges the Greenback's value against a basket of six major currencies, trades near 98.80, down 0.87% on the day and touching its lowest level since May 29.
A weaker US Dollar makes Gold cheaper for buyers using other currencies, while falling Treasury yields reduce the opportunity cost of holding the non-yielding metal.
Looking ahead, Gold’s near-term direction hinges on Federal Reserve (Fed) signals and developments in the Middle East amid a sparse US economic calendar.
The minutes of the Federal Open Market Committee’s (FOMC) July meeting, due at 18:00 GMT, will be closely watched as uncertainty over the Fed’s interest-rate outlook persists.
Since the July meeting, weaker-than-expected labour market and inflation data have reduced the likelihood of an interest-rate hike at the upcoming meeting. Traders have subsequently trimmed the probability of a September hike to just 32%, according to the CME FedWatch tool.
"Recent softer US economic data has lowered the probability of additional tightening, easing a major headwind for the yellow metal. Gold is also benefiting from concerns over rising US government debt, renewed investor demand and stronger central-bank buying, particularly from China," said Antreas Themistokleous, trading content specialist at Exness.
However, the energy shock stemming from the war in the Middle East keeps inflation risks tilted to the upside, supporting expectations that the Fed may eventually need to raise interest rates and clouding the outlook over whether Gold’s recent recovery can be sustained.
Technical analysis: XAU/USD reclaims the 100-day SMA
On the daily chart, XAU/USD holds a bullish near-term bias as it extends above the 100-day Simple Moving Average (MA) at $4,381. Momentum remains constructive, with the Relative Strength Index (RSI) at 63 staying in positive territory while the Moving Average Convergence Divergence (MACD) histogram stays above zero, hinting that buyers retain control despite signs of a moderation in upside strength.
On the topside, initial resistance is defined by the upper Bollinger band at $4,528, where recent advances could start to face profit-taking. On the downside, immediate support emerges at the 100-day MA at $4,381, followed by the Bollinger middle band around $4,222.
A deeper pullback would expose a more solid horizontal floor at $4,000, ahead of the lower Bollinger band near $3,916.
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