Gold rises on Middle East tensions; inflation fears temper rate cut bets and cap gains
- Gold attracts some safe-haven flows amid a further escalation of tensions in the Middle East.
- Inflation fears temper Fed rate cut bets, underpinning the USD and capping the commodity.
- Traders seem reluctant to place aggressive bets ahead of this week’s key central bank events.
Gold (XAU/USD) edges higher during the Asian session on Tuesday, though it lacks follow-through and remains close to an over three-week low, touched the previous day. There are few signs that the US-Israeli war on Iran is ending soon amid the escalating conflict between Israel and Hezbollah in Lebanon. In fact, the Israeli military said that it is expanding ground assault in southern Lebanon – an area where the militant group Hezbollah is known to hold sway. This keeps geopolitical risks in play and turns out to be a key factor lending some support to the safe-haven precious metal.
As the war enters its third week, Iran continues to attack civilian infrastructure – airports, ports, oil facilities, and commercial hubs – in the six Gulf states with missiles and drones. Furthermore, the disruption of shipping through the Strait of Hormuz – a key chokepoint for a fifth of global oil supply – remains supportive of elevated Crude prices. This continues to fuel inflationary concerns, which could force the US Federal Reserve (Fed) to keep interest rates higher for longer and even consider rate hikes. The outlook, in turn, caps the non-yielding Gold and warrants caution for bulls.
Meanwhile, hawkish implications of the ongoing conflict in the Middle East revive the US Dollar (USD) demand following the overnight pullback from its highest level since May 2025 and contribute to keeping a lid on the XAU/USD pair. The USD bulls, however, seem hesitant and opt to wait for the outcome of a two-day FOMC meeting on Wednesday. Moreover, policy updates by other major central banks – the European Central Bank (ECB), the Bank of Japan (BoJ), and the Bank of England (BoE) – should provide a fresh impetus to the Gold during the latter part of the week.
XAU/USD 4-hour chart
Gold seems vulnerable as breakdown below 200-period SMA and 38.2% Fibo. level remains in play
The recent breakdown through the 200-period Simple Moving Average (SMA) on the 4-hour chart and acceptance below the 38.2% Fibonacci retracement level of the February-March move up favors the XAU/USD bears. Moreover, the Moving Average Convergence Divergence (MACD) indicator (12, 26, 9) remains below zero with the line under its signal and a negative histogram, signaling persistent downside momentum. The Relative Strength Index (RSI) at 41 leans toward the weak side of neutral and aligns with sellers retaining the initiative for now.
Immediate resistance emerges at the 38.2% Fibo. retracement near $5,040, followed by the 200-period SMA around $5,063, with a break above this zone needed to ease bearish pressure and open the way toward the 23.6% Fibo. retracement at $5,186. On the downside, initial support is located at the psychological $5,000 area, ahead of the recent lows near $4,995–$4,985, where failure would expose deeper retracement toward the 50.0% retracement level at $4,921.41. A sustained close back above the 200-period SMA would weaken the bearish tone, while continued rejection below $5,040 keeps the focus on lower supports.
(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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