Gold sticks to gains as Iran diplomacy hopes weigh on USD; upside potential seems limited
- Gold kicks off the new week on a positive note as US-Iran peace deal hopes undermine the USD.
- The US and Iran remain at odds over key issues, helping limit USD losses amid hawkish Fed bets.
- The technical setup warrants caution for bulls before positioning for further appreciation.
Gold (XAU/USD) builds on its modest bullish opening gap and climbs to a four-day high, around the $4,580 region, during the Asian session on Monday. Developments over the weekend spurred hopes for a potential US-Iran peace deal, which undermines the US Dollar's (USD) reserve currency status and provides a goodish lift to the commodity. The US and Iran, however, remain at odds over key issues. This, along with hawkish US Federal Reserve (Fed) expectations, helps limit the USD losses and keeps the non-yielding yellow metal capped below the top boundary of a range held over the past week or so.
Axios reported late Saturday, citing a US official, that the US and Iran are close to signing an agreement that involves a 60-day ceasefire extension during which the Strait of Hormuz would be reopened. Adding to this, US President Donald Trump said that the framework for a peace deal with Iran was largely negotiated. This boosts investors' confidence and the resultant slump in Crude Oil prices ease inflationary fears, triggering a steep decline in US Treasury bond yields amid relatively thin liquidity as many global markets are closed for holidays. This, in turn, is seen weighing heavily on the Greenback.
Meanwhile, Trump explicitly instructed his representatives not to rush into a deal with Iran and said that a naval blockade of Iranian ports will remain in effect until a formal, certified agreement is signed. Furthermore, major disagreements over Iran's nuclear program should cap the optimism. Moreover, bets that the US Fed will hike interest rates in 2026 could act as a tailwind for the USD. This, in turn, makes it prudent to wait for some follow-through buying before confirming that the Gold has formed a near-term bottom around the $4,450 area, or its lowest level since late March, touched last week.
XAU/USD 4-hour chart
Gold struggles to capitalize on the intraday move up amid a bearish technical setup
From a technical perspective, the XAU/USD pair holds within a downward parallel channel. The channel ceiling coincides with the 200-period Exponential Moving Average (EMA) on the 4-hour chart, forming a cluster resistance near the $4,650 area, suggesting that rallies remain vulnerable despite the positive undertone in momentum. The Moving Average Convergence Divergence (MACD) is above zero, and the histogram is still positive. Moreover, the Relative Strength Index (RSI) hovers in the mid-50s, hinting at a tentative recovery rather than a clear trend shift.
On the downside, the lower boundary of the parallel channel around $4,360 marks the next key support area. A break beneath this floor would reinforce the broader bearish structure and open the door to a deeper correction within the medium-term downtrend.
(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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