Gold rebounds modestly but remains pressured by higher-for-longer interest rate outlook
- Gold trims intraday losses, but gains remain capped by firmer US Dollar and elevated Oil prices.
- Oil-driven inflation fuels higher-for-longer rate expectations, weighing on Gold
- Technically, XAU/USD trades below the Bollinger midline on the 4-hour chart, signaling downside pressure.
Gold (XAU/USD) trims earlier intraday losses on Thursday, but upside remains limited as a firmer US Dollar (USD) and elevated Oil prices weigh on the precious metal, while uncertainty over stalled US-Iran talks keeps market sentiment cautious.
At the time of writing, XAU/USD is trading around $4,740, after hitting an intraday low of $4,684.
Shipping disruptions in Hormuz sustain inflation fears
The downside comes as tensions escalate in the Strait of Hormuz, which remains under a dual blockade by the US Navy and Iran. Islamic Revolutionary Guards Corps (IRGC) reportedly seized two vessels in the strait on Wednesday, according to shipping companies and the semi-official Tasnim news agency.
Meanwhile, The Washington Post, citing a Pentagon assessment, reported that it could take up to six months to fully clear mines from the waterway, underscoring the risk of prolonged disruption to global oil supply.
Rising crude Oil prices, driven by these disruptions, continue to fuel inflation concerns globally, increasing the likelihood of a “higher-for-longer” interest rate environment across major central banks. While Gold is typically viewed as a hedge against inflation, higher borrowing costs tend to weigh on demand for the non-yielding asset as investors shift toward yield-bearing assets such as bonds.
US-Iran talks uncertainty underpins US Dollar strength
Markets remain skeptical about whether the United States (US) and Iran will resume negotiations anytime soon. This comes despite the ceasefire extension announced by US President Donald Trump, which Iranian officials have not formally accepted. Tehran has criticized Washington’s decision to maintain the naval blockade, calling it a key obstacle to negotiations.
This backdrop is underpinning the US Dollar after a corrective slide earlier this month on hopes of de-escalation following the announcement of a two-week ceasefire. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.78, extending gains for the third straight day.
At the same time, fading expectations of Federal Reserve (Fed) interest rate cuts are lifting US Treasury yields, further supporting the US Dollar and weighing on non-yielding assets like Gold.
Looking ahead, traders will closely monitor developments around the US–Iran situation. On the data front, US Initial Jobless Claims rose to 214K, above the 212K forecast and up from 208K previously.
Attention now turns to the preliminary S&P Global PMI data due later in the American session, which could provide fresh insight into business activity and influence the near-term direction of the US Dollar and Gold.
Technical Analysis: XAU/USD trades below the Bollinger midline, downside risks linger
In the 4-hour chart, XAU/USD remains capped in the near term, trading under the 20-period Simple Moving Average (the Bollinger middle band) at roughly $4,756, which reinforces a bearish bias despite still holding comfortably above the lower band support near $4,677. The Relative Strength Index (14) around 41 leans to the downside, suggesting sellers retain the upper hand, while the modest Average True Range (14) near 38 points to contained but persistent volatility.
On the topside, initial resistance is aligned with the 20-period SMA/Bollinger middle band at about $4,756, with a further hurdle at the upper Bollinger band near $4,834, where failure would keep the broader corrective tone intact. On the downside, immediate support emerges at the lower Bollinger band around $4,677; a decisive break below this floor would open the door to a deeper pullback, whereas sustained defense of this area could encourage a consolidation phase.
(The technical analysis of this story was written with the help of an AI tool.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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