Gold recovers as Hormuz reopening hopes drag US Dollar, Oil prices lower
- Gold rebounds as hopes for reopening the Strait of Hormuz weigh on the US Dollar and Oil prices.
- Attention shifts to ADP and Nonfarm Payrolls after weaker-than-expected JOLTS Job Openings.
- XAU/USD remains trapped below $4,100, with the 21-day SMA providing near-term support.
Gold (XAU/USD) catches a fresh bid on Tuesday as traders react to encouraging headlines about the possible reopening of the Strait of Hormuz. At the time of writing, XAU/USD trades around $4,087, recovering from an intraday low near $4,042.
In an interview with CNBC, US Treasury Secretary Scott Bessent said, “We are in talks with the Iranians,” adding that “there is a chance we may have a deal today or tomorrow to open the Strait and move towards a more normalized position in this conflict.”
Separately, Al Arabiya reported, citing a high-ranking source, that an announcement on reopening the Strait of Hormuz is expected shortly. However, no official confirmation has been released.
The latest developments lifted market sentiment, sending the US Dollar (USD) and Oil prices lower. West Texas Intermediate (WTI) fell towards $75.50, its lowest level in three weeks.
Lower Oil prices ease inflation risks and reduce pressure on the Federal Reserve (Fed) to raise interest rates. The move also dragged US Treasury yields lower, providing additional support to Gold.
Expectations of a September Fed rate hike have weakened, with the CME FedWatch Tool showing the probability falling to 57.1% from 67.2% a day earlier. Higher interest rates typically weigh on non-yielding assets such as Gold.
The combination of a weaker US Dollar and lower Treasury yields helped the precious metal regain ground. However, traders may avoid chasing Gold aggressively higher as the situation remains fluid and Tehran has yet to confirm either direct talks with Washington or an agreement to reopen the Strait.
Meanwhile, US JOLTS Job Openings fell to 7.359 million in June from 7.594 million, slightly below the 7.4 million expected. Traders now await ADP Employment Change on Wednesday and Nonfarm Payrolls (NFP) on Friday for clearer signals on the US labour market and monetary policy path. Softer labour figures could further reduce Fed rate-hike expectations and support Gold.
Technical analysis: Consolidation continues below $4,100
In the daily chart, XAU/USD is consolidating in a neutral tone, holding above the 21-day Simple Moving Average (SMA) at $4,062 but still well below the longer-term 100-day SMA, which keeps the broader uptrend in check.
The Relative Strength Index (RSI) around 49 suggests balanced momentum, while the Moving Average Convergence Divergence (MACD) indicator stays modestly positive, hinting at a lack of clear directional conviction in the near term.
On the topside, initial resistance emerges at the horizontal barrier of $4,100, followed by a higher cap at $4,200 before the 100-day SMA at $4,407. On the downside, nearby support is seen around the current price zone, with the 21-day SMA at $4,062 protecting the short-term floor, ahead of the more important horizontal support at $4,000.
(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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