Gold recovers part of Tuesday’s losses as the US Dollar loses momentum.
Traders await the FOMC minutes for fresh clues on the Fed’s interest-rate outlook.
XAU/USD stays confined to its recent range, with the 100-day SMA capping the upside.
Gold (XAU/USD) enters Wednesday’s American trading hours with decent intraday gains, as a softer US Dollar (USD) and a modest pullback in long-term US Treasury yields help the metal recover some of the previous day’s losses. At the time of writing, XAU/USD trades around $4,380, up nearly 1% on the day.
Buyers, however, lack strong conviction as a mixed fundamental backdrop keeps XAU/USD trapped within the tight range seen over the past week. 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, helping limit Gold’s downside.
"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.
These concerns are partially reflected in longer-term US Treasury yields, which remain elevated despite Wednesday’s modest pullback. High yields cap Gold’s upside by increasing the opportunity cost of holding the non-yielding metal.
Analysts at ING see “tonight's release of the FOMC minutes for the July meeting” as the key catalyst. They remind clients that “the vote was 9-3 for unchanged rates and the event proved a dovish one for the short end of the US curve and the dollar, while the long end sold off,” suggesting that any reiteration of that tone could again weigh on the front end and the Dollar even as long-end yields remain sensitive to higher energy prices and geopolitical risk.
The US Dollar Index (DXY), which gauges the Greenback's value against a basket of six major currencies, trades near 99.28, down 0.37% on the day and touching its lowest level since June 5.
Technical analysis: XAU/USD struggles below the 100-day SMA
The metal holds above the 20-day Bollinger simple moving average (SMA) at $4,219, but the near-term tone appears capped, with price sitting just below the 100-day SMA at $4,381.
The upper Bollinger band at $4,519 marks the top of the current volatility envelope, while a mildly elevated Relative Strength Index (RSI) on the daily chart at 59 and a still-positive Moving Average Convergence Divergence (MACD) histogram hint at limited bullish momentum rather than a clear trend extension.
On the downside, a break below the recent range support at $4,300 could expose the middle Bollinger Band near $4,219. The $4,000 psychological mark offers the next support, followed by the lower Bollinger Band at $3,920.
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