Gold remains depressed as Hormuz standoff supports USD amid hawkish Fed rate bets
- Gold attracts some sellers as persistent geopolitical uncertainties revive USD demand.
- Hawkish central bank expectations further exert pressure on the non-yielding bullion.
- The broader setup favors the XAU/USD bears as Trump’s Hormuz deadline approaches.
Gold (XAU/USD) remains on the back foot during the Asian session on Tuesday, though it lacks follow-through selling and trades in the previous day's broader range. Hopes for a last-minute agreement between the US and Iran are fading ahead of President Donald Trump’s Tuesday evening deadline to reopen the Strait of Hormuz. This benefits the US Dollar's (USD) global reserve currency status and exerts some pressure on the commodity. Apart from this, expectations for higher interest rates globally turn out to be another factor undermining the non-yielding yellow metal.
Investors now seem convinced that the war-driven surge in energy prices would revive inflationary pressures and force major central banks, including the US Federal Reserve (Fed), to adopt a more hawkish stance. In fact, Crude Oil prices advanced to a four-week top after Trump heightened his rhetoric against Iran and threatened to decimate civilian infrastructure if the deadline passed without a deal. In response, the advisor to Iran's Parliament Speaker, Mohammad Bagher Ghalibaf, emphasized that Iran will not back down and said that Trump has about 20 hours to either surrender or his allies will return to the Paleolithic Age. This raises the risk of a further escalation of conflicts in the Middle East and remains supportive of elevated Crude Oil prices.
Meanwhile, data from the Institute for Supply Management (ISM) showed on Monday that the Services PMI fell short of market expectations and eased to 54 in March from 56.1 in the previous month. pointing to some loss of momentum. Additional details of the report revealed that inflation pressures gathered traction, with the Prices Paid Index edging higher to 70.7 from 63. This comes on top of the upbeat US Nonfarm Payrolls (NFP) report last Friday, which signaled a resilient labor market, and boosted bets that the Fed will hold rates higher for longer to combat inflation. The outlook, in turn, favors the USD bulls and suggests that the path of least resistance for the Gold price is to the downside. Traders now look to the US macro data for a fresh impetus.
XAU/USD 4-hour chart
Gold bears might await a break below $4,600 before positioning for further losses
The near-term bias is mildly bearish as the XAU/USD pair holds below the downward-sloping 200-period Simple Moving Average (SMA) on the 4-hour chart. The Moving Average Convergence Divergence (MACD) histogram remains negative with the line below the signal and hovering around the zero line, which suggests lingering downside pressure but without strong momentum. Moreover, the Relative Strength Index (RSI) around 49 shows neutral momentum, aligning with a consolidative tone within a broader downside context.
Immediate resistance emerges near the 38.2% Fibonacci retracement level of the March downfall, at $4,607, and a sustained break above would open the way toward the $4,763, or the 50.0% retracement level. As long as the Gold price trades below that latter barrier and the distant 200-period SMA, rallies are exposed to selling on strength. On the downside, initial support is seen around the recent $4,600 swing area, with a break lower exposing the 23.6% Fibo. The retracement level is the $4,416 as the next bearish target, where dip-buying interest could attempt to stabilize the previous metal.
(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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