Gold struggles near $4,700 as Hormuz risks and inflation-driven Fed repricing lift USD
- Gold meets with a fresh supply on Thursday as Hormuz risks continue to underpin the USD.
- Inflation concerns fuel less dovish Fed bets and further weigh on the non-yielding bullion.
- The fundamental backdrop favors bearish traders and backs the case for deeper losses.
Gold (XAU/USD) struggles to capitalize on the previous day's modest gains and attracts fresh selling during the Asian session on Thursday. The US Dollar (USD) gains positive traction for the third straight day as signs of friction between the US and Iran remained due to the American naval blockade of Iranian ports. Moreover, a standoff over the Strait of Hormuz and dimming hopes for more rate cuts by the US Federal Reserve (Fed) act as a tailwind for the Greenback, exerting some pressure on the non-yielding yellow metal.
US President Donald Trump announced a temporary extension of the Iran ceasefire on Tuesday, just hours before it was set to expire. Investors, however, remain skeptical about a durable de-escalation amid the lack of progress in peace talks and rising tensions over the Strait of Hormuz. Trump had said that the US Navy blockade of Iranian ports will continue, while Iran has set the removal of the US naval blockade as a strict precondition for resuming negotiations. Furthermore, the Islamic Revolutionary Guard Corps (IRGC) said that it had captured two container ships on Wednesday, its first seizures since its war with the US and Israel began in February. This raises the risk of a further escalation of tensions and keeps geopolitical risks in play, underpinning the USD's reserve currency status.
Meanwhile, continued disruptions to energy supplies through the strategic waterway remain supportive of elevated Crude Oil prices, which has led to a significant surge in global inflation. This, in turn, fuels speculation about a more hawkish stance from major central banks, including the Fed. Although Fed officials projected one rate cut by the end of this year, sticky inflation and resilient economic activity have increased the threshold for a reduction in borrowing costs. This might force the Fed to adopt a wait-and-see approach, which turns out to be another factor supporting the USD and contributes to driving flows away from the non-interest-bearing Gold. The XAU/USD bears now await acceptance below the $4,700 mark before placing fresh bets and positioning for a further depreciation.
XAU/USD 4-hour chart
Gold bears await a convincing break below the ascending channel support
The XAU/USD pair currently sits near the lower boundary of an upward-sloping parallel channel, showing a broadly neutral near-term tone. The Relative Strength Index (RSI) hovers near 39, leaning toward the lower end of its range and hinting at fading bullish momentum but not yet in oversold conditions. The Moving Average Convergence Divergence (MACD) indicator remains in negative territory, reinforcing that upside attempts may struggle until momentum improves.
Meanwhile, a convincing break below the trend-channel support around $4,691 would expose the prior structural base near $4,568 and pave the way for deeper losses if selling accelerates. On the topside, bulls would need a sustained break above the channel resistance at roughly $4,926 to revive the broader uptrend and open the way for additional gains.
(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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