Gold (XAU/USD) finds bids and edges higher during the North American session on Wednesday after the Federal Reserve’s (Fed) last meeting minutes showed that most officials favored laying the groundwork for a rate hike. At the time of writing, the XAU/USD pair trades at $4,530, up by 1%.
XAU/USD climbs as lower yields offset hawkish Fed minutes
The minutes of the April meeting revealed that the majority of the board supported the need for some policy tightening if inflation remains stubbornly above the 2% goal. Additionally, the minutes stated that “many participants indicated that they would have preferred removing the language from the post-meeting statement that suggested an easing bias regarding the likely direction of the Committee's future interest rate decisions.”
This is the second meeting in a row in which more Fed officials have said that increasing borrowing costs could be appropriate if prices remain high. The minutes showed that “participants generally observed Middle East conflict could have significant implications for balance of risks and appropriate policy path.”
Money markets have priced in a 50% chance that the Federal Reserve will raise rates at the December meeting, according to Prime Terminal data.
Despite this, bullion continues to rally as the Greenback slides, reaching two-day lows. The US Dollar Index (DXY), which tracks the performance of the American currency against the other six currencies, is down 0.19% at 99.11, after hitting two-day lows at 98.96.
US Treasury yields are also taking a hit, with the 10-year T-note yielding 4.576%, down 9 basis points, a tailwind for the non-yielding metal.
Geopolitics continued to drive Gold’s price action after US President Donald Trump said that negotiations with Iran are in the final stage and warned of attacks if the deal fails. The Iranian Revolutionary Guard Corps said that “if aggression against Iran is repeated, the promised regional war will extend beyond the region this time.”
Data-wise, the US economic docket remains light, with investors awaiting Initial Jobless Claims, housing data, and the S&P Global Flash PMIs.
XAU/USD technical outlook: Gold jumps, poised to test stir resistance around $4,600
Gold is in consolidation mode, with a cluster of key technical resistance levels slightly above $4,600.
Momentum remains bearish, but the Relative Strength Index (RSI) suggests buyers are gaining strength, which could open the door to a test of the $4,600 mark.
A breach of $4,600 will expose the 20-day Simple Moving Average (SMA) at $4,628 and the 50-day SMA at $4,690. On further strength, the next stop would be the $4,700 figure, ahead of the 100-day SMA at $4,787.
On the downside, if XAU/USD drops below $4,500, a move towards the May 19 low at $4,464 and $4,400 is on the cards. Once hurdled, the next stop would be the 200-day SMA at $4,340.
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