Gold edges lower as Hormuz risks fuel inflation worries and hawkish Fed bets before US CPI
- Gold meets with a fresh supply amid a modest USD uptick, though it lacks bearish conviction.
- Inflation fears fuel hawkish Fed expectations and exert additional pressure on the commodity.
- Traders now seem hesitant to place aggressive bets and opt to wait for the key US CPI report.
Gold (XAU/USD) attracts fresh sellers following the previous day's failed attempt to conquer the $4,800 mark and slides to the $4,738-$4,737 region during the Asian session on Friday. The precious metal, however, remains confined to a familiar range as traders keenly await the release of the latest US consumer inflation figures for some meaningful impetus.
The crucial US Consumer Price Index (CPI) report is expected to show that inflation likely rose further in March amid the war-driven surge in Crude Oil prices. This could further discourage the US Federal Reserve (Fed) from cutting interest rates for a while. In fact, Minutes from the March 17–18 FOMC meeting revealed on Wednesday that officials were in no rush to cut rates amid upside risks to inflation stemming from Middle East energy price shocks. Adding to this, tensions around the Strait of Hormuz offer some support to the US Dollar (USD), which, in turn, is seen exerting downward pressure on the Gold price.
Iran halted shipping traffic through the strategic waterway in response to brutal Israeli attacks on Lebanon. Meanwhile, US President Donald Trump accused Iran of doing a very poor job of handling oil through the Strait of Hormuz, and that it was not the agreement they had. Trump also warned of renewed strikes if the Iran deal fails, suggesting that escalation risks remain on the table. This acts as a tailwind for Crude Oil prices, fueling inflationary concerns and reaffirming hawkish Fed bets. This further undermines the non-yielding Gold, though the lack of follow-through selling warrants caution for bearish traders.
Meanwhile, Israeli Prime Minister Benjamin Netanyahu said that he has issued an instruction to start direct negotiations with Lebanon as soon as possible, addressing a key point of contention in the fragile US-Iran ceasefire. A US State Department official reportedly confirmed that talks between Lebanon and Israel will take place next week in Washington, DC. Moreover, crucial US-Iran talks are scheduled in phases between late Friday night and Saturday. This keeps alive hopes of the Iran ceasefire stabilizing, which, in turn, caps any meaningful appreciation for the USD and helps in limiting the downside for the Gold price.
XAU/USD 4-hour chart
Gold bears have the upper hand while below 200-SMA and 61.8% Fibo. confluence
From a technical perspective, the XAU/USD pair is holding a neutral-to-slightly bearish tone as it remains capped well below the 200-period Simple Moving Average (SMA) on the 4-hour chart. The said resistance coincides with the 61.8% Fibonacci retracement level of the March downfall and should act as a key pivotal point.
Meanwhile, the Relative Strength Index (RSI) around 56 hints at modest underlying demand after the recent pullback. That said, the Moving Average Convergence Divergence (MACD) has slipped marginally into negative territory, suggesting waning upside momentum and reinforcing the 200-period SMA's strong barrier at $4,883.
This is followed closely by the 61.8% Fibo. retracement level at $4,908.40. A clear break above this cluster would open the way toward $5,131.50 and ultimately $5,415.69.
On the downside, immediate support is provided by the 50.0% retracement at $4,751.70, with a break there exposing the next Fibonacci floors at $4,595.00 and $4,401.11, ahead of more substantial structural support near $4,087.71.
(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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