Gold weakens as inflation concerns lift US bond yields and USD; downside remains cushioned
- Gold drifts lower for the second straight day on Thursday, though it lacks follow-through selling.
- Rising Oil prices revive inflation concerns, lifting US bond yields and the USD, and exerting pressure.
- A further escalation of Middle East tensions limits the downside for the safe-haven precious metal.
Gold (XAU/USD) trades with a negative bias for the second consecutive day on Thursday, though it lacks follow-through selling and stalls the intraday slide near the $5,125 area. A fresh leg up in Crude Oil prices threatens the inflation outlook and overshadows signs of moderating price growth in the US, dimming hopes for near-term interest rate cuts by the US Federal Reserve (Fed). This assists the US Dollar (USD) to prolong its uptrend for the third day and exerts pressure on the non-yielding yellow metal.
The US Bureau of Labor Statistics reported on Wednesday that the headline Consumer Price Index (CPI) rose 0.2% in February and the yearly rate held steady at 3.1%. Investors, however, remain worried about a surge in inflation amid a further escalation of the military conflict between Israel, US forces and Iran. In fact, Iran’s Islamic Revolutionary Guard Corps (IRGC) said that it launched a joint operation with Lebanon's Hezbollah against targets in Israel, Jordan, and Saudi Arabia. Moreover, reports that two oil tankers were attacked in the northern Persian Gulf near Iraq and Kuwait add to worries about supply disruptions from the Middle East, triggering a rally of over 6% in Crude Oil prices.
The International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned on Monday that a sustained 10% rise in Oil prices for a year would push global inflation by 40 basis points (bps). This might force the US Fed to delay cutting interest rates, which leads to a further rise in the US Treasury bond yields. This, in turn, continues to push the US Treasury bond yields higher, which remains supportive of the bid tone surrounding the USD and is seen driving flows away from the Gold. However, rising geopolitical tensions offer some support to the safe-haven XAU/USD, warranting some caution for aggressive bearish traders before positioning for any further depreciating move.
Traders now look forward to the release of the usual US Weekly Initial Jobless Claims, due later today, for some impetus ahead of the US Personal Consumption Expenditures (PCE) Price Index on Friday. The focus, however, will remain on developments surrounding the US-Israel-Iran war and Oil price dynamics, which would influence the central banks' policy outlook. Apart from this, the broader risk sentiment should contribute to infusing some volatility around the Gold price.
XAU/USD 4-hour chart
Gold bears need to wait for a break below channel support and 200-period SMA on H4
The XAU/USD pair holds above the upward-sloping 200-period Simple Moving Average (SMA) on the 4-hour chart, around $5,083, keeping the broader uptrend intact within the ascending channel. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram has eased from recent highs but remains in positive territory, suggesting momentum is cooling rather than reversing. Moreover, the Relative Strength Index (RSI) hovers just below 50, aligning with a modest upside tilt while signaling a lack of strong directional conviction.
Initial support emerges at the channel floor near $5,116, aligned just above the 200-period SMA, and a break below this area would expose deeper downside toward the $5,080 region. On the topside, immediate resistance stands at $5,200, with a sustained move above this barrier opening the way toward the channel resistance near $5,570. As long as the price holds above $5,116, dips are likely to attract buyers, while rejection below $5,200 would keep XAU/USD confined to a consolidative phase within the broader bullish channel.
(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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