- Despite demand for safe haven assets being undercut by the Fed’s “higher for longer” interest rate policy, the price of gold is still rising.
- Fed Powell is in favor of maintaining high interest rates until it is certain that inflation will decline to 2%.
- In reaction to Iran’s attack on Israel, the US issues a warning regarding sanctions on them.
The price of gold (XAU/USD) rises to $2,400 in the early American trading on Wednesday. While Jerome Powell, the chair of the Federal Reserve (Fed), has highlighted the need to maintain the restrictive policy framework for an extended length of time, the precious metal is attempting to reclaim fresh all-time highs around $2,430. Given the persistence of inflation and the robust labor market, Powell and his associates appear to be inclined toward maintaining higher interest rates for an extended period of time.
The US dollar and US bond yields are expected to benefit from the Fed’s decision to maintain higher interest rates for longer. The yield on the US 10-year Treasury decreased little but stayed near a five-month high of 4.70%. Following a five-month high above 106.40, the US Dollar Index (DXY), which gauges the value of the Greenback versus six major currencies, veers sideways.
Gold is well-positioned in the meanwhile as Middle East tensions continue to rise. Israel gets ready to counterattack Iran. But US President Joe Biden declared that the country will not back Israel’s counteroffensive. Following Iran’s attack on Israel, the US administration plans to impose more sanctions, US Treasury Secretary Janet Yellen announced on Tuesday. Iran’s ability to export oil may be impacted by new sanctions.
Daily digest market movers: Gold price remains inside Tuesday’s range
- The price of gold is trading near the critical $2,400 resistance level. Rising Middle East tensions provide solid support for the precious metal market, but the upside has been constrained by Federal Reserve Chair Jerome Powell’s hawkish interest rate forecast.
- Jerome Powell defended raising interest rates for an extended length of time on Tuesday, citing the lack of trust in the current inflation data to support a return to the targeted rate of 2% in price pressures. According to Reuters, Powell stated, “The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence.”
- Powell went on to say that the first three months of this year’s strong labor demand and sluggish disinflation progress indicate that the framework of tight monetary policy should be given more time to work at bringing inflation down to 2%.
- The Consumer Price Index (CPI) statistics for March unexpectedly increased more than predicted, casting doubt on the Fed’s confidence in the inflation lowering process toward the mandated rate of 2%. Furthermore, strong Retail Sales numbers for March have bolstered hopes that the forecast for inflation would continue to be obstinate.Growing geopolitical tensions in the Middle East support the desire for safe haven. Concerns about the Middle East crisis expanding beyond Gaza have grown as Israel gets ready to strike back at Iran’s airstrike on its territory on Saturday. Following Israel’s attack on the Iranian embassy in Syria, which resulted in the deaths of two high-ranking generals, Iran launched hundreds of drones and missiles into Israel.
- The allure of gold as a safe-haven investment intensifies when investors witness escalating geopolitical tensions. This week, Fed policymakers are scheduled to deliver new guidance on interest rates.It is anticipated that policymakers will continue to argue that interest rates must stay higher until they have proof that inflation will eventually stabilize at the targeted rate of 2%.
Technical Analysis: Gto $2,400old price rebounds
The price of gold fluctuates within Tuesday’s trading range of $2,380. The precious metal’s upside is still constrained since momentum oscillators are cooling off after becoming overbought to an extraordinary degree. On the daily chart, the 14-period Relative Strength Index (RSI) peaks at approximately 85.00 and then progressively declines. However, as long as the RSI stays inside the bullish area of 60.00–80.00, the longer-term demand is still in place.
The low on April 5 at $2,268 and the high on March 21 at $2,223 will be important places of support on the downside.