The market this Thursday morning showed gold (XAUUSD) trying to breathe a sigh of relief after successfully recovering from a seven-week low. Market sentiment turned a little cheerful as if it had gained new energy.
However, as traders, we should not be fooled by this temporary smile. This upward momentum is still stuck below the psychological level of $4,600, reflecting a deep sense of doubt among institutional investors who know that behind this calm, the Federal Reserve is still preparing to pounce.
Trump's Peace Attempt Temporarily Calms the Greenback
The main trigger for this technical rise in gold was a rather sharp price correction in the US Dollar Index.
This situation occurred after Donald Trump stated that peace talks between the US and Iran are now in the "final stages". This news is very important to the market because it reduces the risk of closing the Strait of Hormuz, while temporarily calming the madness of WTI crude oil prices which had previously comfortably stayed high at around $104.15 per barrel.
As geopolitical risks decline, the safe haven appeal of the Dollar wanes, giving the market room to take advantage of short covering in oversold gold.
Hawkish FOMC Minutes & ‘Yield’
Despite the peace news, this gold recovery has been like climbing a hill with heavy sandbags. Don’t forget, the minutes of yesterday’s FOMC meeting clearly showed that the majority of Fed members are ready to raise interest rates if inflation remains stubbornly above the 2% target.
Further reinforcing the Fed’s warning, the data on the real yield index of US 10-year inflation-adjusted bonds (DFII10) has jumped as high as +16.58%. This figure is clear evidence that the market is pricing in the real cost of borrowing to remain high for an extended period.
Coupled with the ISM Price Index (USBCOI) rising by +13.33%, it is clear that manufacturing inflation is back on the rise.
Despite this, the copper to gold ratio fell -13.33%, signaling that investors are still hunting for gold as a hedge against inflation, with hawkish Fed expectations continuing to be a major headwind limiting the room for gold to fly higher.
MARKET TECHNICAL STRUCTURE
Looking at the daily chart of XAUUSD currently trading around $4,530, the market structure clearly tells us who is actually dominant.
Current Bias: Bearish (Short-term selling is still dominant).
Resistance Level ($4,623 – $4,678): Up there, gold is tightly contained by a very strong moving average cluster. The 21-day SMA at $4,623.65 and the 50-day SMA at $4,678.23 act as strong resistance areas.
As long as the price fails to break and hold above the 21-day SMA, this daily bearish structure remains intact and any increase is bait for sellers to re-enter.
Support ($4,365): If this peace market is just a showdown and gold prices break through the current price level, the next major reaction zone is at the 200-day SMA around $4,365.45. This is the last bastion of defense for long-term buyers, if it is successfully broken, then the bullish history of gold is over.
MARKET EXPECTATIONS
Scenario A: Positive US PMI Data (Gold Re-Headed)
If the US S&P Global Manufacturing and Services PMI data tonight come out stronger than expected, it will prove that the US economy is too resilient. This will give the Fed plenty of ammunition to realize their hawkish statements.
Bond yields will rise again, the Dollar will be sought again, and gold will lose its recovery momentum and plunge towards $4,365.
Scenario B: Peace Deal Officially Signed & Weak US PMI Data (Gold Breaks Resistance) If the US PMI data records a sharp decline and the US-Iran peace deal is officially signed, the Dollar will experience panic selling. This sentiment will push gold to break above $4,600 and open up new momentum towards the next resistance.
Highlight
US PMI Data Release (Tonight): This is a very critical economic report event. Investors are waiting for this data as a new indication, whether US business activity is following the hot ISM input cost inflation or not. This figure will guide the direction of Fed interest rate speculation before next month's NFP and CPI data.
The author's advice as a trader who is used to seeing the market's emotional games, do not chase the price (chasing the market) during this technical 'rebounce' phase.
Gold's rally below $4,600 is just an emotional reaction to Trump's peace tweet. The real fundamentals driven by high capital costs (DFII10) and a hawkish Fed are still in favor of the Dollar.
