Gold consolidates around $4,500 amid Middle East developments, firmer USD
- Gold stalls the overnight rejection slide from the 100-day SMA, though buyers seem hesitant.
- Geopolitical risks fuel inflation fears and Fed rate hike bets, which lend support to the USD.
- The technical setup favors bears and warrants caution before positioning for any recovery.
Gold (XAU/USD) shows some resilience below the $4,500 psychological mark during the Asian session on Thursday and stalls the overnight rejection slide from the 100-day Simple Moving Average (SMA). The upside, however, remains capped amid a bullish US Dollar (USD). Furthermore, the broader fundamental backdrop warrants caution before positioning for an extension of this week's solid rebound from a technically significant 200-day SMA support, around the $4,100 mark, or a four-month low.
Despite US President Donald Trump's ceasefire rhetoric, Iran publicly rejected claims of ongoing negotiations and said that there is no chance of a deal between the two adversaries. Moreover, Iran turned down a 15-point ceasefire proposal from the US and has reportedly set sweeping demands to wind down the widening Middle East conflict. Apart from this, the deployment of additional US troops in the region raises to the risk of further escalation of the conflict, which continues to underpin the USD's global reserve currency status and, in turn, caps the upside for the Gold.
Meanwhile, energy infrastructure in Iran remains under pressure. Adding to this, the effective closure of the Strait of Hormuz acts as a tailwind for Crude Oil prices, fueling inflationary concerns and bolstering bets for a hawkish stance from major central banks, including the US Federal Reserve (Fed). In fact, traders have nearly priced out the possibility of any further rate cuts by the Fed and are rapidly increasing bets for a hike by the end of this year. This triggers a fresh leg up in US Treasury bond yields, which further supports the USD and keeps a lid on the non-yielding Gold.
Traders, however, seem reluctant to place aggressive directional bets and might opt to wait for further developments in the ongoing conflict in the Middle East. Nevertheless, the Gold price remains highly sensitive to geopolitical headlines, and volatility is expected to remain elevated amid speculation of a potential US ground operation to seize Iran’s key oil export hub at Kharg Island.
XAU/USD daily chart
Gold bears have the upper hand below 100-day SMA/38.2% Fibo. confluence resistance
From a technical perspective, the near-term bias is mildly bearish as the XAU/USD pair holds below the 100-day SMA, which capped the overnight move up, suggesting a corrective phase within a broader uptrend. Adding to this, the Moving Average Convergence Divergence (MACD) indicator stays in negative territory with the line below its signal line, reinforcing persistent downside momentum. Furthermore, the Relative Strength Index (RSI) hovers in the low-30s after dipping below 30, indicating that bearish pressure dominates but short-term oversold conditions could slow the decline.
Meanwhile, the 100-day SMA coincides with the 38.2% Fibonacci retracement level of the fall from the monthly swing high, reinforcing a key barrier. A daily close above that area would open the way toward the 50.0% retracement level at $4,770, where sellers could reappear. On the downside, initial support aligns near the 23.6% Fibo. retracement level at $4,422, ahead of the recent swing low at $4,407. A break below this band would expose the $4,300 region, while only a recovery back above $4,614 would start to erode the current bearish tone.
(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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