Gold gains ground to near $4,150 as traders weigh Fed rate path

Gold prices edged closer to the $4,150 mark on Friday as traders considered the Federal Reserve's (Fed) interest-rate outlook. The precious metal rose from a two-month low after US President Donald Trump stated that the US would not attack Iran prior to the midterm elections. Trump also mentioned "productive discussions" with Iran, though no details were provided.

Minutes from the Fed's last meeting revealed that policymakers were in agreement on maintaining the current hike in the target range for the federal funds rate by the end of the year. Despite this, Fed Governor Christopher Waller suggested that additional increases might be necessary by year-end, although he emphasized the flexibility in the pace of hikes and indicated a potential pause in October.

Analysts at Scotiabank noted a mixed performance for metals, with copper remaining stable near its peak while gold faced vulnerabilities following its recent drop below $4,100/oz. Waller's hawkish remarks, with a score of 8/10, contrasted with the historical average of 7.2/10, indicating a preference for a higher terminal rate with flexibility in timing.

The Federal Sentiment Index for the Fed increased by 0.42 points to 138.34, confirming a predominantly hawkish stance in Fed communications. Despite this, the market expected a stronger dollar and higher Fed rate expectations, even with the added flexibility in the pace of future hikes.

In the daily chart, gold remained under pressure as it traded below both the Bollinger middle band and the 100-day simple moving average (SMA), signaling a bearish short-term bias. The immediate support level was identified at the lower Bollinger band around $4,060, while the first resistance was found at the middle band around $4,240, followed by the 100-day SMA at $4,265 and the Bollinger upper band at $4,420 as a stronger barrier if prices attempted a deeper correction.

Historically, gold has been used as a store of value and medium of exchange, and is also viewed as a safe-haven asset during turbulent times. Central banks, seeking to stabilize their currencies, often diversify their reserves by purchasing gold to bolster economic and currency strength. In 2022, central banks added 1,136 tonnes of gold, representing a record-high yearly purchase.