Gold holds above $5,200 as Middle East tensions and weak USD support ahead of US CPI
- Gold benefits from the flight to safety amid a further escalation of the conflict in the Middle East.
- Easing inflation concerns weigh on the USD and offer additional support to the precious metal.
- Traders now look to the crucial US CPI report for a fresh impetus amid mixed Fed rate cut signals.
Gold (XAU/USD) attracts buyers for the second consecutive day on Wednesday and climbs to the $5,223 area during the Asian session, back closer to a one-week high touched the previous day. The US Dollar (USD) struggles to capitalize on the overnight bounce from a one-week low amid expectations that Crude Oil prices are no longer high enough to limit the US Federal Reserve's (Fed) ability to cut interest rates. This, in turn, prompts some USD selling and acts as a tailwind for the non-yielding yellow metal.
Crude Oil prices retreated sharply following a blowout rally to the highest level since June 2022, touched earlier this week, after US President Donald Trump hinted that the war in the Middle East could end soon. Moreover, the Wall Street Journal reported this Wednesday that the International Energy Agency (IEA) has proposed the largest release of oil reserves in its history in an effort to lower Crude prices amid the US-Israel conflict with Iran. This helps ease concerns about a potential war-driven surge in inflation and keeps hopes alive for further easing by the US central bank, undermining the Greenback and benefiting the Gold price.
There were no signs of an end to hostilities, with Iran experiencing the most intense US-Israeli bombardments on Tuesday. The Islamic Revolutionary Guard Corps (IRGC), on the other hand, escalated its operations against the US and Israel, and announced the start of targeting the enemy's technological infrastructure in the region. This keeps geopolitical risks in play, which keeps a lid on any optimism in the markets and turns out to be another factor supporting the safe-haven Gold. Traders, however, might refrain from placing aggressive bets and opt to wait for the latest US consumer inflation figures, due later today.
The US Consumer Price Index (CPI) will be looked upon for cues about the Fed's rate-cut path amid concerns that the closure of the Strait of Hormuz could lead to prolonged disruptions to oil supplies and rekindle inflation. This will be followed by the US Personal Consumption Expenditures (PCE) Price Index on Friday, which will play a key role in influencing the near-term USD price dynamics and provide a fresh impetus to the Gold. Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of bullish traders, suggesting that any corrective slide could be seen as a buying opportunity and is likely to remain limited.
XAU/USD 1-hour chart
Gold seems poised to appreciate further; 100-hour SMA holds the key for bullish traders
The overnight breakout above the rising 100-hour Simple Moving Average (SMA) and the subsequent move beyond the $5,200 mark were seen as key triggers for the XAU/USD bulls. However, the Moving Average Convergence Divergence (MACD) (12, 26, close, 9) now holds below its signal line in positive-to-flat territory with a negative histogram, suggesting fading upside momentum after the recent spike. Moreover, the Relative Strength Index (RSI) (14) has retreated from overbought readings above 70 to the mid-50s, indicating that buying pressure is cooling and favoring corrective downside while the larger structure remains supported.
Initial resistance emerges at the recent intraday high near $5,228, with a break above exposing the next upside leg toward the $5,260 area as bulls attempt to resume the broader advance. On the downside, immediate support stands at $5,190, ahead of a more important floor at $5,160, where prior reaction lows converge with the rising 100-period SMA to form a key demand zone. A clear drop through $5,160 would open the way toward $5,140, undermining the current bullish structure, while holding above $5,190 would keep the pullback contained and leave room for another test of $5,228.
(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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