Gold struggles to hold gains amid mixed US-Iran headlines, hawkish Fed
- Gold struggles to hold its early advance on Monday as traders weigh conflicting US-Iran headlines.
- Hawkish Fed expectations continue to cap gains ahead of a packed US economic calendar.
- Momentum indicators suggest consolidation, with the RSI near neutral and the ADX pointing to weakening trend strength.
Gold (XAU/USD) starts the week on a positive note, although buyers lack conviction as markets weigh conflicting US-Iran headlines and look ahead to US employment data for fresh clues on the Federal Reserve’s (Fed) policy outlook.
At the time of writing, XAU/USD trades around $4,050, up 0.20% on the day, after reaching an intraday high of $4,084.
US President Donald Trump said over the weekend that he had called off a planned strike on Iran, with negotiations expected to begin on Monday. The announcement lifted hopes of a peace deal and sent Oil prices sharply lower, with West Texas Intermediate (WTI) down more than 7% at the time of writing.
The pullback in Oil prices eases immediate inflation concerns and pulls US Treasury yields lower, offering support to Gold. However, supply disruptions through the Strait of Hormuz keep Oil prices above pre-war levels.
Iranian Foreign Ministry spokesperson Esmaeil Baghaei also said Tehran is not currently holding talks with Washington, keeping traders sceptical about the chances of a deal and the full reopening of the Strait.
As a result, broader inflation concerns remain alive, and traders still see a high likelihood of the Fed raising interest rates this year. New York Fed President John Williams said on Monday that “rate policy is still well positioned to reach 2% inflation,” adding that “if inflation is not on track to 2%, the Fed will intervene to restore price stability.”
The CME FedWatch Tool shows that traders see a 65% chance of a rate hike in September. These hawkish bets continue to cap Gold’s upside despite broad weakness in the US Dollar (USD), driven by intervention from Japanese authorities to support the Yen.
On the US economic calendar, the ISM Manufacturing Purchasing Managers’ Index (PMI) is due later on Monday, followed by the JOLTS Job Openings report on Tuesday, ADP Employment Change on Wednesday and Nonfarm Payrolls (NFP) on Friday.
Technical analysis: Neutral RSI points to consolidation above $4,000
On the daily chart, XAU/USD maintains a capped tone as it trades below the 21-day Simple Moving Average (SMA) and well under the 50-day and 100-day SMAs.
This configuration suggests the broader trend is still under pressure, even as the Relative Strength Index (RSI) at 46 has recovered toward neutral and the Average Directional Index (ADX) at 27 hints at easing trend strength after the recent decline.
On the topside, immediate resistance is seen at the 21-day SMA near $4,066, followed by a more significant barrier at the 50-day SMA around $4,175, with the 100-day SMA at $4,416 reinforcing the broader bearish cap.
On the downside, initial support aligns with the horizontal level at $4,000, ahead of a deeper structural floor at $3,850, and a daily close below $4,000 would likely reopen the path toward the lower band of this support zone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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