Gold holds steady as hawkish Fed bets counter Israel-Iran truce and weaker USD
- Gold steadies following the overnight bounce from its lowest level since March 23.
- Israel and Iran halt hostilities, undermining the USD and supporting the commodity.
- US bond yields remain elevated amid hawkish Fed bets, capping the precious metal.
Gold (XAU/USD) struggles to capitalize on the previous day's late recovery from the $4,267-$4,268 region, or the lowest level since March 23, and oscillates in a narrow band during the Asian session on Tuesday. The US Dollar (USD) retreated from an over two-month high after Iran and Israel said on Monday they had halted attacks on each other after an appeal from US President Donald Trump. This, in turn, is seen as a key factor acting as a tailwind for the precious metal. Traders, however, seem hesitant and opt to wait for further progress in the broader Middle East conflict.
Meanwhile, the diplomatic engagement between the US and Iran remains deadlocked amid major disagreements over Tehran's nuclear program. In fact, Trump has said that any peace deal must ensure Iran cannot develop a nuclear weapon. Moreover, Iran is demanding formal international recognition of its sovereignty and permanent control over maritime traffic through the Strait of Hormuz, the lifting of international sanctions, and the release of frozen assets. Major disagreements over key issues keep geopolitical risk premium in play, which could act as a tailwind for the safe-haven buck and cap any meaningful appreciation for the Gold price.
Adding to this, shipping traffic through the strategic chokepoint remains severely constrained, keeping energy markets highly volatile. This continues to fuel inflationary concerns and expectations for more hawkish central banks, including the US Federal Reserve (Fed). According to the CME Group's FedWatch Tool, investors are assigning more than a 70% chance that the US central bank will hike interest rates by year-end. This remains supportive of elevated US Treasury bond yields, which might hold back the USD bears from placing aggressive bets and cap the non-yielding Gold. Traders might also opt to wait for US consumer inflation figures this week.
The closely-watched US Consumer Price Index (CPI) and Producer Price Index (PPI) reports for May are scheduled for release on Wednesday and Thursday, respectively. The crucial data would assist market participants to gauge the Fed's monetary policy path, which, in turn, will play a key role in driving the USD demand. Furthermore, the incoming geopolitical headlines might continue to infuse volatility and provide some impetus to the Gold price. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the XAU/USD pair is to the downside. Hence, any further move up is likely to be sold into and remain capped.
XAU/USD daily chart
Gold bears have the upper hand as 200-day SMA breakdown remains in play
From a technical perspective, last week's breakdown and close below the 200-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders. The subsequent fall, however, showed some resilience near a descending channel support, near $4,270.16. Hence, it will be prudent to wait for a sustained break below the said area before positioning for deeper losses.
Meanwhile, the Relative Strength Index (RSI) hovers around 35, staying in weak territory without yet signaling an oversold washout. Moreover, the Moving Average Convergence Divergence (MACD) remains in negative territory with subdued momentum, hinting that sellers still have the upper hand but lack aggressive follow-through.
Hence, any recovery attempt is likely to confront stiff resistance near the 200-day SMA at $4,441.10 that bulls would need to reclaim to ease immediate downside pressure, ahead of the channel’s upper boundary around $4,571.21. The latter is a key significant barrier, which should cap the Gold price within a broader bearish structure.
(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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