• Gold price sees safe haven inflow on comments Israel considers striking Iran nuclear facilities. 
  • President Trump clashes with Republican members on his fiscal package plan through US Congress. 
  • Gold has broken out of its tight range and could see follow-through higher.

Gold (XAU/USD) edges higher on Wednesday towards $3,310 at the time of writing, with grave concerns that tensions in the Middle East could spiral out of control again and Trump's fiscal bill possibly not passing Congress. In late trading on Tuesday, CNN reported that Israel is considering targeting nuclear sites in Iran. While former United States (US) President Joe Biden was able to change Israel’s Prime Minister Benjamin Netanyahu’s mind, US President Donald Trump has seen his diplomatic efforts fall apart, with markets mulling whether Trump is still able to control Netanyahu. 

In the US, President Trump is facing setbacks at home as well as the administration struggles to get enough support to pass through Congress its tax bill. Frustration arose for Trump at Capitol Hill when speaking with lawmakers who demanded to significantly boost the cap on the state and local tax (SALT) deduction.

Daily digest market movers: Iran and Congress in balance

  • CNN reports that It is still not clear that Israeli leaders have made a final decision on targeting Iranian nuclear facilities. The intelligence came from public and private messaging from senior Israeli officials, intercepted Israeli communications and observations of Israeli military movements, CNN reports.
  • Safe-haven support for Gold was boosted by a CNN report that indicated Israel may be planning a strike on Iranian nuclear facilities. It remains unclear whether a final decision to carry out the attack was made, the report said. Markets will want to look for confirmation from either US or Israel’s leaders. 
  • On the back of the phone call between US President Trump and Russian President Vladimir Putin, the Vatican has proposed to host any event related to Ukraine-Russia peace talks. 
  • The Financial Times reports that US lawmakers are pressing Northern Ireland to approve an American-owned Gold mine potentially worth billions of pounds to the local economy, warning that delays to the project risk driving away foreign capital.

Gold Price Technical Analysis: All stars aligned for a weekly gain

Recent headlines about the Middle East and the deadlock in the US Congress are another hit for President Trump and his credibility, and to a broader extent, the credibility of the US Dollar and the US economy. Gold benefits from uncertainty,  and it could peak back above $3,350 should Israel confirm its plans. 

On the upside, the R1 resistance at $3,324 is the first level to look out for as it aligns with the high of May 12. The R2 resistance at $3,354 follows not far behind the R1 and could open the door for a return to $3,431, which were the peaks of April 21 and May 6 and 7. 

Some thick-layered support emerges on the downside in case Gold price declines. On the downside, the daily pivot comes in at $3,263. Next, there is a technical pivotal level at $3,245, and, just below, $3,231 as the intraday S1. 

XAU/USD: Daily Chart

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Source: Fxstreet