Gold rises as USD retreats on US‑Iran ceasefire extension; lacks bullish conviction
- Gold attracts some buyers as the US-Iran ceasefire extension undermines the USD.
- A standoff over the Strait of Hormuz could limit USD losses and cap the commodity.
- A less dovish Fed also supports the USD and warrants caution for the XAU/USD bulls.
Gold (XAU/USD) gains some positive traction during the Asian session on Wednesday and moves away from a one-week low, around the $4,669-$4,668 region, touched the previous day. The US Dollar (USD) edges lower in reaction to a temporary extension of the US-Iran ceasefire, turning out to be a key factor that offers some support to the commodity. Investors, however, remain worried about prolonged disruptions in the Strait of Hormuz. This, along with expectations for a less dovish US Federal Reserve (Fed), could limit deeper USD losses and cap the non-yielding yellow metal.
US President Donald Trump announced on Tuesday that he would indefinitely extend the ceasefire with Iran to allow the two countries to continue peace talks to end the war. That said, Tasnim News Agency, affiliated with Iran's Revolutionary Guards, reported that Iran had not asked for a ceasefire extension. Furthermore, signs of friction between the US and Iran remained due to the American naval blockade of Iranian ports. In fact, Trump said that he would keep up the pressure on Iran by maintaining the blockade. However, Iran wants the US to lift its blockade before peace talks can restart. This keeps geopolitical risks in play and might continue to benefit the USD's reserve currency status.
Meanwhile, comments from Fed Chair nominee Kevin Warsh at a Senate confirmation hearing on Tuesday were interpreted as slightly hawkish. Warsh tried to assure US senators that he would act independently of the White House while pursuing broad reforms and stated that he had made no promises to President Donald Trump over cutting interest rates. Adding to this, strong US Retail Sales data provided an upbeat view on the strength of the American economy and prompted economists to upgrade their growth estimates for the first quarter. This might further hold back the USD bears on the sidelines, warranting some caution before positioning for any further appreciating move for the Gold price.
Moving ahead, there isn't any relevant market-moving economic data due for release from the US on Wednesday, leaving the USD at the mercy of geopolitical headlines. Fresh developments surrounding the US-Iran saga might continue to infuse volatility in the financial markets and produce some trading opportunities around Gold. Nevertheless, the aforementioned fundamental backdrop suggests that some follow-through buying is needed to back the case for the resumption of the XAU/USD pair's move up witnessed over the past month or so.
XAU/USD 4-hour chart
Gold might struggle to capitalize on the move up amid a bearish technical setup
From a technical perspective, last week's failure ahead of the $4,900 mark and the subsequent slide warrant caution for the XAU/USD bulls. Furthermore, the Relative Strength Index (RSI) is hovering near a neutral 46 and suggests lacklustre upside momentum. Adding to this, the Moving Average Convergence Divergence (MACD) indicator is in negative territory, suggesting that bullish attempts could remain gradual while corrective pressures linger.
The precious metal is currently pressing against a confluence hurdle – comprising the 100-period Exponential Moving Average (EMA) on the 4-hour chart and the 61.8% Fibonacci retracement of the March downfall. This configuration keeps the near-term bias cautiously bearish. Meanwhile, initial support is the 50.0% level at $4,754.02. A sustained break below this would expose the 38.2% Fibo. retracement floor at $4,595.95 and open a deeper corrective phase if bearish pressure persists.
On the flip side, momentum beyond the $4,760-$4,765 confluence is followed by a more meaningful hurdle at the 61.8% Fibo. retracement near $4,912.08, where sellers would likely reassert control if tested.
(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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