Gold price movements (XAU/USD) were seen to be quite flat and ‘lazy’ around the $4,129 level during the early London market session on Tuesday evening.
Currently, gold traders seem to be stuck between two major opposing sentiments, namely the positive developments in the US-Iran peace talks and the threat of an interest rate hike by the US central bank (The Fed).
Here are the main reasons why the price of gold is ‘stuck’ for the time being:
1. US-Iran Peace Talks Reduce ‘Safe Haven’ Demand
US Vice President, JD Vance, revealed that the talks between the US and Iran in Bürgenstock, Switzerland showed very positive developments. Although the atmosphere was quite tense before, Iran has reportedly agreed to allow International Atomic Energy Agency (IAEA) inspectors to enter their country again.
Previously, the market panicked when Iran threatened to close the Strait of Hormuz due to the Israeli attack in Lebanon which was allegedly a violation of the ceasefire. Saxo Bank analyst Ole Hansen explained that energy costs (oil) will continue to be the main driver of the precious metals market. These “up and down” negotiations have the potential to put pressure on oil prices, thus influencing the direction of gold.
2. New Fed Chairman Makes ‘Hawkish’ Surprise, Gold Loses Tie
The main factor preventing gold from rising higher is the actions of the new Fed Chairman, Kevin Warsh. He took a very hawkish approach to the inflation issue in his first policy meeting recently.
The signal has made the market now start betting that the Fed will raise interest rates this year. According to market norms, gold is an asset that does not provide interest returns (yield). So, when interest rates are expected to rise, the attractiveness of gold compared to the US dollar or bonds will automatically decrease.
Key Data CME FedWatch Tool:
Market sentiment has now changed drastically:
The probability of the Fed raising interest rates in December has now jumped to 89%.
This figure is up sharply compared to only 61% before the FOMC meeting last week.
Trader's conclusion: For now, the XAU/USD chart appears to be gathering momentum (sideway). If the Middle East geopolitical issues really subside, gold risks falling further due to Fed interest rate pressure. However, if the talks suddenly fail, gold could rebound to seek the $4,216 level.
As usual, use your stop loss (SL) and get ready! Do you think gold will go up or down this week?
