Gold prices slipped ahead of the release of the FOMC minutes, with bulls choosing to lighten their bets.
Concerns over Trump's tariff plans and trade wars provided support for commodities.
Fed rate cut bets weighed on the dollar, providing further support to the gold/dollar pair.
Gold prices (XAU/USD) attracted some selling during the Asian session on Wednesday, giving back part of the previous day's strong rally near record highs. The decline can be attributed to some profit-taking amidst the overall positive risk sentiment, which tends to weaken demand for safe-haven metals. Nonetheless, uncertainty surrounding U.S. President Trump's tariff plans is likely to continue to provide support for the precious metal.
Meanwhile, market expectations that the Federal Reserve (Fed) may further cut interest rates this year, supported by a surprising decline in U.S. retail sales, failed to help the U.S. dollar (USD) capitalize on Tuesday's modest gains. This should help limit any significant downside in gold prices. Traders may choose to wait for the FOMC minutes for clues on the path of rate cuts before making directional bets on the non-yielding yellow metal.
Optimism over a delay in the implementation of reciprocal tariffs by U.S. President Donald Trump and talks aimed at ending the lengthy Russia-Ukraine war prompted some profit-taking in gold prices on Wednesday.
Investors remain concerned that global trade tensions could escalate as a result of Trump's protectionist policies. This, along with bets on further policy easing by the Federal Reserve, supported the safe-haven metal.
The disappointing release of U.S. retail sales data on Friday, along with mixed signals on inflation, suggest the U.S. central bank could cut rates at its monetary policy meeting in September or October.
In fact, federal funds futures are signaling the possibility of a 40 basis point rate cut by the end of the year. This limited the dollar's (USD) rebound from two-month lows and further supported gold/USD.
San Francisco Federal Reserve Bank President Mary Daly said on Tuesday that the U.S. central bank should keep short-term borrowing costs unchanged until progress towards its 2% inflation target is more evident.
Therefore, market attention will continue to focus on the release of the Fed's January meeting minutes, with investors watching for clues about the central bank's interest rate trajectory and the impact on non-yielding gold.
From a technical perspective, the range-bound price action can still be viewed as a bullish consolidation phase on the back of the recent strong rally to all-time highs. Nonetheless, the daily relative strength index (RSI) remains close to overbought territory, supporting the continuation of the price consolidation move. However, the technical pattern still favors the bulls, suggesting that the path of least resistance for XAU/USD remains to the upside.
Meanwhile, a break below the $2,925 area could see the pair find some support near $2,900, followed by the $2,878-2,876 range or the lower boundary of the short-term trading range. A break below the latter could drag the pair towards the $2,860-2,855 area and further towards the $2,834 area. Failure to hold the aforementioned support could prompt some technical selling that could drag the pair towards the $2,815 area and further towards the $2,800 and $2,785-2,784 area.
On the other hand, the $2,940-2,942 area, the all-time high hit earlier this month, could continue to act as a strong resistance level. Some follow-up buying would be seen as a fresh trigger for bullish traders and set the stage for the continuation of the nice uptrend seen over the past two months or so.
Gold has played a key role in human history as it is widely used as a store of value and a medium of exchange. Currently, in addition to its lustre and use in jewellery, gold is widely viewed as a safe haven asset, meaning it is considered a good investment in times of turmoil. Gold is also widely viewed as a hedge against inflation and currency debasement as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies during turbulent times, central banks tend to diversify their reserves and buy gold to boost perceptions of economic and monetary strength. High gold reserves can be a source of trust in a country's solvency. According to the World Gold Council, central banks added 1,136 tonnes of gold reserves in 2022, worth about $70 billion. This is the highest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold is negatively correlated with the U.S. dollar and U.S. Treasuries, both of which are major reserve assets and safe havens. Gold tends to rise when the dollar depreciates, allowing investors and central banks to diversify their assets during turbulent times. Gold is also negatively correlated with risky assets. A rebound in the stock market tends to push gold prices lower, while a sell-off in riskier markets tends to favor gold.
Prices can move due to a wide variety of factors. Geopolitical instability or fears of a deep recession can quickly push gold prices higher due to its safe-haven status. As a low-yielding asset, gold tends to rise as interest rates fall, while higher funding costs usually weigh on gold. Still, since the asset is priced in U.S. dollars (XAU/USD), most moves depend on the performance of the U.S. dollar (USD). A strong dollar tends to control gold prices, while a weak dollar can push gold prices higher.