Gold edges higher amid modest USD downtick; hawkish Fed bets and bearish setup cap gains
- Gold attracts some dip-buyers at the start of a new week, though the upside seems limited.
- A modest USD downtick supports the XAU/USD pair, while hawkish central banks cap gains.
- The technical setup favors bearish traders as the commodity stays below the 100-day SMA.
Gold (XAU/USD) reverses a modest Asian session slide to the $4,420 area and looks to build on Friday's strong gains of over 2.50%. The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, struggles to find acceptance above the 100-psychological mark and retreats slightly from the vicinity of the highest level since November 2025, touched earlier this month. This turns out to be a key factor offering some support to the commodity. However, expectations of higher interest rates globally might keep a lid on any meaningful appreciation for the non-yielding yellow metal.
Investors now seem convinced that major central banks will adopt a more hawkish stance as the war-driven surge in energy prices continues to fuel inflationary fears. The fears were further fueled by reports that the US is considering a ground invasion of Iran and the entry of Yemen's Houthis. The Iran-backed militant group launched missile and drone attacks on Israel in the space of less than 24 hours and warned that further attacks would follow in the coming days. This opens a new front in a rapidly escalating conflict that has rattled the global economy, raising the risk of further disruption to global trade passing through the Bab el-Mandeb Strait off the Red Sea. This, along with the effective closure of the Strait of Hormuz, remains supportive of elevated Oil prices and threatens to rekindle inflationary pressures.
Meanwhile, the Organization for Economic Co-operation and Development (OECD) raised its forecast for US inflation and now estimates headline prices to rise at a 4.2% rate, far above its prior forecast and the Fed's expectations for 2.7%. Moreover, the OECD said that its baseline forecast is the Fed keeping the policy rate flat through 2027. That said, the CME Group's FedWatch tool indicates over a 50% chance of a rate increase by the US central bank in 2025. This favors the USD bulls and warrants caution before positioning for any further upside for the Gold price. Even the technical setup makes it prudent to wait for strong follow-through buying before confirming that the XAU/USD pair has formed a near-term bottom around the $4,100 mark, or the lowest since November 2025, touched earlier this month.
XAU/USD daily chart
Gold bears have the upper hand as 100-day SMA breakpoint remains in play
The range-bound price action witnessed over the past week or so might be categorized as a bearish consolidation phase amid the recent breakdown below the 100-day Simple Moving Average (SMA). Last week's solid rebound from the very important 200-day SMA pivotal support, however, warrants some caution before placing fresh bearish bets.
Meanwhile, the Moving Average Convergence Divergence (MACD) line remains below its signal line and in negative territory, with a still-negative histogram, reinforcing persistent downward momentum. The Relative Strength Index (RSI) hovers in the mid-30s after recovering from oversold readings, hinting that bearish pressure is easing but not yet reversing.
Immediate resistance emerges near the 100-day SMA around $4,630, with a break above this area needed to open the way toward $4,880 as the next upside barrier. On the downside, initial support stands at the recent low near $4,380, where prior selling stalled, followed by a lower support zone at $4,300 if sellers extend control.
(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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