Gold moderates lower as stronger US Dollar weighs

• Gold pulls back on Wednesday as a result of a stronger US Dollar. 
• The Greenback is rising due to less dovish interest rate expectations in the US.
• XAU/USD starts a new short-term uptrend on the 4-hour chart. 

Gold (XAU/USD) pauses its recovery and pulls back into the $2,620s on Wednesday due mostly to the effect of a stronger US Dollar (USD). Since Gold is mainly priced and traded in USD, this automatically has the effect of lowering its price even though all other things being equal. 

Gold stalls in the middle of recovery 

Gold recovered from eight-week lows in the $2,530s at the beginning of the week as a result of increased safe-haven flows. This came on the back of a ratcheting up of geopolitical tensions after Russia amended its conditions for using its nuclear armaments. The move was interpreted as a warning to Ukraine and its allies following the decision of US President Joe Biden to allow Ukraine to use US-made long-range ATACMS (Army Tactical Missile System) missiles to strike targets in Russia. 

US Dollar on the rise 

Gold is in retreat on Wednesday from a strengthening US Dollar, which is seeing gains as markets price in a lower probability – of now around 60% – of the Federal Reserve (Fed) cutting interest rates in December. Previously, markets had been 100% sure the Fed would go ahead with at least a 25 basis point (bps) (0.25%) rate cut. However, since President-elect Donald Trump won the US presidential election – and due to recently robust US macroeconomic data – the probabilities have steadily fallen. The Fed keeping interest rates elevated is positive for the US Dollar since it increases foreign capital inflows.

The main cause of the strengthening Dollar is Trump’s proposed economic and trade policies. These include increasing or placing tariffs on imports, which will effectively push up their prices, causing inflation and keeping interest rates high; lower taxes, which will increase spending power, thereby also pushing up inflation; and a more relaxed regulatory environment. 

Technical Analysis: XAU/USD extends short-term uptrend 

Gold recovers above a major trendline on Wednesday as it extends its short-term trend higher. Given the principle of technical analysis that “the trend is your friend,” the odds favor more upside to come. 

XAU/USD 4-hour Chart

A break above the daily high at $2,642 will probably indicate an extension of the trend higher. The next target to the upside lies at $2,686, the September 26 high. 

The precious metal is in a downtrend on a medium-term but an uptrend on a long-term basis, raising risks of moves both higher or lower in line with these broader cycles.