Gold (XAU/USD) edged higher on Thursday, recovering from the one-month low of $4,510 seen the previous day, and was trading around $4,620, up approximately 1.67% on the day. This rebound was primarily attributed to a weakening US Dollar, with the US Dollar Index (DXY) down about 0.68% at 98.28, following increased FX intervention warnings from Tokyo. Despite this uptick, gold remains on track for a second consecutive monthly decline, as macroeconomic headwinds persist, including ongoing tensions in the Middle East and uncertainty over a resolution to the US-Iran war and the reopening of the Strait of Hormuz, which have kept oil prices elevated and fueled inflation concerns [1].
The Federal Reserve's latest monetary policy decision, announced on Wednesday, left the benchmark rate unchanged in the 3.50%-3.75% range, as expected. However, the decision revealed a notable split within the committee, with an 8-4 vote—the highest number of dissents since 1992. Governor Stephen Miran supported a 25 basis point rate cut, while regional Fed Presidents Beth Hammack, Neel Kashkari, and Lorie Logan opposed any easing bias in the statement. Fed Chair Jerome Powell highlighted that developments in the Middle East are adding to economic uncertainty and that elevated energy costs are likely to push inflation higher in the near term. Powell emphasized that the current policy stance is 'well positioned' for a wait-and-see approach [1].
Market expectations have shifted, with the CME Group FedWatch Tool indicating that markets now increasingly expect the central bank to keep rates on hold through 2026. The probability of a rate hike by April 2027 has risen to 23.8% from just 0.8% a week earlier. This higher interest rate environment is typically negative for non-yielding assets like gold, limiting its upside despite the intraday rebound. Additionally, Powell’s term as Chair ends on May 15, and former Fed Governor Kevin Warsh, nominated by US President Donald Trump, is awaiting a full Senate vote after his nomination was advanced by the Senate Banking Committee on Wednesday [1].
CONCLUSION
Gold's modest rebound is driven by US Dollar weakness, but persistent inflation concerns and the Federal Reserve's higher-for-longer rate stance are capping further gains. Market sentiment remains cautious, with expectations for prolonged elevated rates and ongoing geopolitical uncertainty weighing on non-yielding assets like gold.