• Gold has eked out another new fresh all-time high at $3,045 on Wednesday. 
  • Traders brace for the the upcoming Fed meeting while digesting geopolitical news from Turkey and Ukraine. 
  • Gold’s rally starts to overheat a bit and might see a pullback soon. 

Gold’s price (XAU/USD) is back to flat around $3,035 at the time of writing on Wednesday after stretching higher and hitting a new all-time high at $3,045 earlier in the day. The positive move came after headlines emerged that authorities detained Istanbul mayor Ekrem Imamoglu, President Tayyip Erdogan's main political rival, on charges including corruption and aiding a terrorist group. 

This headline adds to the geopolitical drivers in Gold after Tuesday’s phone call between United States (US) President Donald Trump and Russian President Vladimir Putin, which did not lead to a ceasefire deal or a major breakthrough. President Trump and President Putin agreed to an immediate pause in strikes against energy infrastructure in the Ukraine war. However, Ukrainian President Volodymyr Zelenskyy said late Tuesday that talks about Ukraine without Ukraine will not bring about results.

Nevertheless, traders in the precious metal might face some headwinds later this Wednesday as the Federal Open Market Committee (FOMC) is set to announce its policy rate decision and publish the Summary of Economic Projections update. After the meeting, Federal Reserve (Fed) Chairman Jerome Powell will comment in a press conference. With the Trump policy in the backdrop, markets will want to know how many, if any, rate cuts the Fed members have penciled in for 2025 and beyond. 

Daily digest market movers: Turkey added to geopolitics

  • Despite almost euphoric comments from US President Trump and Russian President Putin, several analysts see the recent ‘slim’ ceasefire deal as a small victory, not a step forward to peace. Putin and Trump agreed that there will be no attacks on energy objects for 30 days, Bloomberg reports. 
  • According to the CME Fedwatch tool, the odds that the Fed will keep interest rates at the current range of 4.25-4.50% on Wednesday are 99%. Meanwhile, rate cut odds for June’s meeting are 64.8%. 
  • Traders are paring back their bets on further monetary policy easing this year, which would weigh on the precious metal as higher yields are bearish for Gold. On the other hand, there are still concerns about a US slowdown as President Donald Trump’s tariff agenda weighs on consumer sentiment. Investors have been slashing holdings of US equities by the most on record, according to Bank of America's latest survey, underscoring a massive rotation underway in markets, Bloomberg reports. 

Technical Analysis: Support at $3,000 must hold at all time

Gold ekes out another fresh all-time high in early Wednesday ahead of the Fed’s interest rate decision. The tail risk in the event is if the Fed’s dot plot (a chart where every voting FOMC member pencils in where they see the monetary policy rate for 2025 and beyond) pencils in fewer rate cuts than markets anticipate. That would boost the fear of a recession or stagflation in the US, with rates remaining elevated to fight the surging inflation caused by a trade war amid tariffs, and would be negative for Gold. 

Regarding technical levels, the new all-time high at $3,045 is the first level to beat. Next for this Wednesday is the R1 resistance at $3,048, just below the $3,050 round number. Once through there, the R2 resistance comes in at $3,063. 

On the downside, the intraday Pivot Point at $3,024 is the first line of defense, followed by the S1 support near $3,010 ahead of the $3,000 level. In case the $3,000 mark snaps, look for $2,985 as big support. 

XAU/USD: Daily Chart

XAU/USD: Daily Chart

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

 

Source: Fxstreet