Gold advances to nearly two-week high as USD slips on hopes that Iran war could end soon
- Gold gains some follow-through traction on Wednesday, though bulls seem hesitant amid mixed cues.
- Hopes for de-escalation of Middle East tensions weigh on the USD and support the precious metal.
- Inflation fears and Fed rate hike bets remain in play, limiting USD losses and capping the commodity.
Gold (XAU/USD) touches a nearly two-week top during the Asian session on Wednesday, with bulls looking to extend a four-day-old uptrend beyond the $4,700 round figure. President Donald Trump said on Tuesday that he expects the US to wrap up its military operation against Iran within two to three weeks and added that Tehran does not have to make a deal for him to end the war. The optimism, in turn, is seen undermining the US Dollar's (USD) global reserve currency status, which tends to benefit USD-denominated commodities, and turning out to be a key factor supporting the precious metal.
Meanwhile, the US deploys 3,500 Marines to the Middle East to reinforce approximately 50,000 US troops already stationed across the region. This marks the largest American military buildup in two decades. Moreover, reports suggest that the United Arab Emirates (UAE) is pushing for military action to reopen the Strait of Hormuz, fueling worries about a broader regional conflict and acting as a tailwind for Crude Oil prices. This, in turn, keeps inflation concerns and Federal Reserve (Fed) rate hike bets in play, which helps limit deeper USD losses and caps any further appreciation for the non-yielding Gold.
Trump will give an address to the nation on Wednesday night at 9 PM EDT (01:00 GMT on Thursday) to update the public on the Iran war. This, along with important US macro releases scheduled at the beginning of a new month, should provide some meaningful impetus to the XAU/USD pair. The US economic docket features the ADP report on private sector employment, the monthly Retail Sales, and the ISM Manufacturing PMI. Apart from this, speeches by influential FOMC members will play a key role in driving the USD demand and producing short-term trading opportunities around the Gold price.
The market attention will then shift to the closely-watched US Nonfarm Payrolls (NFP) report, due on Friday. However, the focus will remain glued to geopolitical developments, which should continue to infuse volatility into the financial markets and influence the Gold price dynamics.
XAU/USD daily chart
Gold bulls have the upper hand as 100-day SMA breakout comes into play
Against the backdrop of last week's solid rebound from a technically significant 200-day Simple Moving Average (SMA), the overnight breakout through the 38.2% Fibonacci retracement level of the March downfall and the 100-day SMA favors the XAU/USD bulls.
The subsequent move up, however, stalls ahead of the 50% retracement level. Moreover, the Moving Average Convergence Divergence (MACD) line stays below its signal line and in negative territory, with the histogram extended to the downside, which reinforces prevailing selling pressure. Furthermore, the Relative Strength Index (RSI) hovers around 46 after recovering from oversold territory, hinting that bearish momentum is easing but not yet reversing.
Hence, it will be prudent to wait for some follow-through buying beyond the $4,745-$4,750 area (50% retracement level) before positioning for additional gains. In the meantime, the 38.2% retracement at $4,590.05 emerges as initial support ahead of the $4,500 psychological mark and the $4,400 round figure that aligns with the 23.6% Fibo. retracement. A convincing break below the latter would deepen the corrective phase and expose the 200-day SMA pivotal support near $4,136.72.
(The technical analysis of this story was written with the help of an AI tool.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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