FX.co ★ XAU/USD, GOLD

The (XAU/USD) maintained its upward momentum for the second consecutive day, reaching a new weekly high. Market participants are actively seeking to break above the key psychological level of $4,400 and establish new long positions. This rally is primarily attributed to the recent decline in global oil prices, which has effectively eased market concerns about runaway inflation and pushed US Treasury yields down from multi-year highs, thus encouraging a flow of funds into gold as a safe haven. However, the Federal Reserve's recently adopted tight monetary policy continues to pose structural challenges, providing strong support for the US dollar. At its key meeting on Wednesday, the Federal Reserve unanimously decided to raise interest rates for the first time since 2023, and expectations are that officials anticipate at least one more rate hike before the end of the year. In the press conference following the meeting, Federal Reserve Chairman Kevin Warsh explicitly stated that stable consumer prices are critical to promoting sound economic development and indicated that persistently high levels of inflation are unacceptable. Meanwhile, ongoing geopolitical tensions in the Middle East, such as the Iranian Revolutionary Guard's attack on a Togolese-flagged oil tanker in the Strait of Hormuz and US President Donald Trump's hints at an imminent decision on military action against Iran, are exacerbating energy market volatility and fueling inflation risks, potentially forcing the Federal Reserve to maintain its tight monetary policy stance. Given the shifting dynamics of monetary policy, UOB Group's currency strategists have revised their outlook, asserting that the Fed's return to a cycle of aggressive interest rate hikes is fundamentally altering market expectations for the US dollar. UOB analysts suggest that, with their current forecast of two more Fed rate hikes, the previously anticipated narrowing of the interest rate differential between the US and the G10 (which has been weighing on the dollar index since late 2024) could reverse, leading the bank to believe the dollar faces significant upside risks against G10 and Asian currencies. According to data from CME Group’s FedWatch tool, market prices reflect a 54% probability of an interest rate hike by the Federal Reserve at the upcoming October Federal Open Market Committee (FOMC) meeting, while expectations for a December rate hike have risen to around 88%. This hawkish monetary stance, coupled with safe-haven demand driven by ongoing geopolitical uncertainty, is limiting the potential for gold price gains. Therefore, market analysts advise cautious traders to wait for sustained buying and a clear breakout before taking any positions, hoping for a more sustained recovery from the six-week low reached earlier this month. Meanwhile, it is recommended to closely monitor key US macroeconomic data, such as industrial production and capacity utilization figures, as well as speeches from key Federal Reserve officials and the latest developments in the Middle East, to identify short-term trading opportunities.

Technically, the pair is currently facing strong resistance near the $4,400 level, supported by the decline of the 20-day simple moving average. On the downside, the pair found strong technical support near the 200-day exponential moving average, with deeper support around the psychological level of $4,300 should a pullback occur. Momentum indicators paint a mixed picture in the short term: while the Relative Strength Index (RSI) has steadily climbed into positive territory, reflecting increased buying interest, the Moving Average Convergence Divergence (MACD) still suggests continued selling pressure. Therefore, traders need to exercise caution when assessing whether the precious metal can successfully break through its recent moving averages and psychological barriers before the end of the week.