Gold eases from three-week top as Iran tensions and hawkish Fed bets support USD
- Gold struggles to capitalize on modest Asian session gains to a three-week high.
- Iran tensions and hawkish Fed bet underpin the USD, capping the precious metal.
- Traders now look to the US inflation figures before positioning for a firm direction.
Gold (XAU/USD) retreats from a three-week high, touched during the Asian session on Tuesday, as traders await the release of the latest US consumer inflation figures before positioning for the next leg of a directional move. In the meantime, the incoming negative headlines surrounding the Middle East crisis dampen hopes for a US-Iran peace deal and benefit the US Dollar's (USD) reserve currency status. Furthermore, a diplomatic setback remains supportive of elevated Crude Oil prices, fueling inflationary concerns and bets for more hawkish central banks, including the US Federal Reserve (Fed). This contributes to a modest USD uptick and contributes to capping the non-yielding yellow metal.
In fact, US President Donald Trump dismissed Iran’s proposal to end a more than two-month-old conflict amid disagreements over Tehran's nuclear program and a standoff over the critical Strait of Hormuz. Furthermore, CNN reported that Trump has grown impatient with the continued closure of the strategic waterway and also frustrated with how the Iranians are handling negotiations to end hostilities. Adding to this, some Trump aides say that he is now more seriously considering a resumption of major combat operations than he has in recent weeks. This spark fears of a fresh escalation in the conflict and further benefits the USD, exerting some downward pressure on the Gold price.
Meanwhile, traders are still pricing in around a 25% chance that the US central bank will hike interest rates by the end of this year amid worries that the war-driven surge in energy prices will rekindle inflationary pressures. Hence, the market focus will remain glued to the crucial US Consumer Price Index (CPI), which should influence expectations about the Fed's policy path and drive the USD demand. Nevertheless, hawkish Fed expectations turn out to be another factor that lends some support to the USD and contributes to the bullion's intraday pullback from the $4,773-$4,774 region. The lack of follow-through selling, however, warrants caution before placing bearish bets on the Gold price.
XAU/USD 4-hour chart
Gold bulls have the upper hand amid constructive technical setup
From a technical perspective, the XAU/USD pair showed some resilience below the 100-period Simple Moving Average (SMA) on the 4-hour chart on Monday. The subsequent rebound from the 38.2% Fibonacci retracement level of the April-May downfall and a breakout through the 61.8% Fibo. level favors bullish traders.
Meanwhile, momentum indicators hint that upside pressure is firm but not yet in a strong trending phase. In fact, the Relative Strength Index (RSI) around 58 suggests moderate bullish momentum, while the Moving Average Convergence Divergence (MACD) histogram is hovering just below zero.
On the topside, immediate resistance is aligned at the 61.8% Fibo. retracement around $4,742, with further hurdles at the 78.6% level near $4,807 and the recent swing high at $4,890. On the downside, initial support is seen at the 50.0% retracement near $4,696, followed by the 100-period SMA around $4,671 and the 38.2% retracement at approximately $4,651. A deeper setback would expose the 23.6% retracement near $4,594 and the structural floor around $4,503.
(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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