Gold declines as inflation-driven USD strength outweighs geopolitical risks
- Gold kicks off the new week on a weaker note as inflation concerns continue to boost the USD.
- The risk of a further escalation of Middle East tensions lends some support to the commodity.
- The technical setup favors the XAU/USD bears and backs the case for further near-term losses.
Gold (XAU/USD) attracts heavy selling at the start of a new week and drops to a four-day low during the Asian session, though it finds some support ahead of the $5,000 psychological mark. An intraday surge of over 25% in Crude Oil prices fueled inflation concerns and further dimmed the prospects for near‑term rate reductions by the US Federal Reserve (Fed). This offsets Friday's dismal US Nonfarm Payrolls (NFP) report and lifts the US Dollar (USD) to a fresh high since November 2025, which, in turn, is seen as a key factor weighing on the non-yielding bullion.
Market players remain worried about the effects of a protracted Middle East conflict on Crude Oil prices and the global economy. In fact, the joint US-Israeli campaign against Iran enters its tenth day on Monday, with no signs of an end to hostilities. Moreover, Iran named Ayatollah Ali Khamenei's son, Mojtaba Khamenei, as the new Supreme Leader, signaling hardliners remain firmly in charge. Investors are now bracing for the risk of a further escalation of tensions as the move is unlikely to be welcomed by US President Donald Trump, who had declared the son "unacceptable".
Meanwhile, the closure of the Strait of Hormuz – a vital shipping route for oil and gas – raises the risk of an energy shock and could disrupt economic activity. These further temper investors’ appetite for riskier assets, which is evident from a sea of red across the global equity markets. The anti-risk flow, in turn, assists the Gold to trim a part of its heavy intraday losses and climb back closer to the $5,100 mark. Nevertheless, the commodity is still trading with a loss of over 1% for the day, and the strong USD bullish sentiment warrants some caution for the XAU/USD bulls.
XAU/USD 4-hour chart
Gold bears await a sustained break and acceptance below 200-EMA on H4
The near-term bias is neutral with a modest downside tilt, as the Gold price oscillates above the rising 200-period Exponential Moving Average (EMA) on the 4-hour chart, showing that the broader uptrend remains intact but momentum has cooled. The Moving Average Convergence Divergence (MACD) indicator slips marginally below its signal line around the zero mark and the histogram has turned slightly negative, suggesting fading bullish pressure rather than an outright bearish regime. The Relative Strength Index at 43 hovers below the 50 midline, aligning with a consolidative tone after the late pullback from this month’s highs.
Immediate support emerges at the $5,060 region, guarding the more important $5,000 area where the 200-period EMA converges with recent reaction lows, and a break below this zone would open the way toward $4,960. On the upside, initial resistance is located around $5,140, the latest swing high before the current drift lower, followed by $5,180 as the next barrier to restore a more convincing bullish profile. A sustained move above $5,180 would neutralize the current downside bias and expose the $5,230 area, while failure to hold above $5,000 would shift focus toward a deeper corrective phase.
(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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