Gold flat lines below $4,800 as Hormuz risks and USD uptick counter Iran diplomacy hopes
- Gold remains on the defensive, though it lacks follow-through selling amid mixed cues.
- The USD is underpinned by Hormuz risks and acts as a headwind for the precious metal.
- Iran diplomacy hopes and fading Fed rate hike bets cap the USD, supporting the bullion.
Gold (XAU/USD) reverses modest Asian session losses to the $4,768-$4,767 region, or a three-day trough, though it lacks follow-through and remains below the $4,800 mark amid mixed cues. Despite intensifying diplomatic efforts to end the Middle East conflict, signs of friction between the US and Iran remained due to the ongoing American naval blockade of Iranian ports. This, in turn, is seen underpinning the US Dollar's (USD) reserve currency status and acting as a headwind for the commodity.
Meanwhile, a 10-day truce between Israel and Lebanon fueled hopes about a potential US-Iran peace deal. In fact, US President Donald Trump struck an optimistic note and told reporters on Thursday that Iran was close to making a deal. According to the Wall Street Journal, Washington and Tehran have agreed in principle to hold fresh talks, though neither side has set a time or venue for the meeting. Nevertheless, the developments remain supportive of a positive risk tone, which, along with diminishing odds for a rate hike by the US Federal Reserve (Fed), caps the USD recovery from its lowest level since late February and limits the downside for Gold.
The US Producer Price Index (PPI) released earlier this week eased concerns about the inflationary impact of the war-driven surge in energy prices. Adding to this, bets for a further de-escalation of tensions in the Middle East keep Crude Oil prices on the defensive and temper hawkish Fed expectations. Traders are currently pricing in a roughly 30% chance of a Fed rate cut by the year-end, holding back traders from positioning for any further USD gains, and lending support to the non-yielding yellow metal. Hence, it will be prudent to wait for some follow-through selling before positioning for an extension of this week's pullback from a nearly one-month high.
Moving ahead, there isn't any relevant market-moving economic data due for release from the US on Friday, leaving the USD at the mercy of speeches from influential FOMC members. The focus, however, will remain glued to another round of US-Iran peace talks, which could take place this weekend. The incoming headlines might continue to infuse volatility in the financial markets and produce some meaningful opportunities around the Gold. Nevertheless, the XAU/USD pair remains on track to post modest gains for the third straight week.
XAU/USD 4-hour chart
Gold continues with its struggle to make it through the 200-period SMA hurdle on H4
From a technical perspective, the overnight failed attempt to conquer the 200-period Simple Moving Average (SMA) on the 4-hour chart warrants some caution for bullish traders. The subsequent slide, however, stalls ahead of the 50% retracement level of the March fall, making it prudent to wait for some follow-through selling below the $4,765 support zone before positioning for any further losses.
Meanwhile, momentum indicators are mixed, with the Relative Strength Index (RSI) hovering near a neutral 50 and the Moving Average Convergence Divergence (MACD) slipping further below the zero line with a negative reading. This hints that sellers retain the tactical advantage unless price can reclaim key 200-period SMA resistance, around $4,814. This is followed by a stronger Fibonacci barrier at the 61.8% retracement near $4,912. A sustained break above these hurdles would be needed to ease the current bearish tone and open the way toward $5,130 and $5,409.
On the downside, initial support is aligned with the 50.0% retracement at $4,759, and a break below this level would expose the next Fibonacci floors at $4,606 and then $4,416, where buyers would be expected to show more interest in defending the broader uptrend structure.
(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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