Gold (XAU/USD) experienced follow-through selling on Tuesday, dropping below $4,050 during the Asian session after failing to hold above $4,100 the previous day. This weakening was primarily driven by the fundamental backdrop favoring the US dollar, especially ahead of the highly anticipated FOMC meeting. Traders, however, showed some restraint in placing aggressive bets, with the US dollar bulls pausing ahead of the crucial two-day meeting, limiting gold's immediate downside potential.
The decline in gold came as investors closely watched for signals regarding the US Federal Reserve's future policy path, which is expected to significantly influence dollar demand and the direction of the non-yielding yellow metal. Despite hopes for US-Iran diplomacy easing inflation fears and leading to an overnight slump in oil prices, geopolitical risks, including restricted traffic through the Strait of Hormuz and drone attacks in Saudi Arabia, Jordan, and Iraq, continued to underpin the US dollar and exert pressure on gold.
Adding to the downward pressure, gold futures on the Multi Commodity Exchange for August delivery traded lower by 0.85% (Rs 1,213) at Rs 141,850 per 10 grams. In Bangalore, the price of 24 karat gold decreased by Rs 172 per gram to Rs 14,417 per gram, and international gold prices marginally declined to $4,050 per ounce. This bearish trend is attributed to growing expectations of potential interest rate hikes by the US Federal Reserve, which is scheduled to start its meeting on Tuesday, July 28.
While gold appears vulnerable to further slippage, particularly if it breaks below the psychological $4,000 mark, its downside seems cushioned as long as the US dollar bulls remain cautious ahead of the FOMC announcement. On the upside, the key resistance level is near the $4,200 mark. A daily close above this barrier would be necessary to alleviate the broader bearish bias and pave the way for a more sustained advance towards the 200-day simple moving average at $4,493.65. Analysts suggest that uncertainties surrounding the US-Iran peace deal, the Fed's interest rate decisions, a stronger dollar, and higher yields might keep gold prices within their current range, forming a base for long-term accumulation by investors.
