Gold climbs as Iran war premium revives Fed hike risk
- Gold price gets a boost yet remains poised to finish the week with losses of over 2.50%.
- US-Iran escalation supports safe-haven demand despite equity recovery.
- Fed’s Hammack and Jefferson keep tightening risks alive.
Gold edges higher by some 0.92% on Friday as the US-Iran conflict boosted energy prices, which ultimately drive inflation higher, increasing expectations that the Federal Reserve (Fed) might need to raise interest rates. At the time of writing, the XAU/USD trades at $4,013, after reaching a daily low of $3,959.
XAU/USD rises as Middle East escalation revives inflation fears
Attacks between the US and Iran soured market sentiment despite the ongoing recovery in US equity markets. Newswires revealing a further escalation of the war are pushing the non-yielding metal higher.
Axios reported that the Trump administration is sending dozens of additional refueling planes to Israel in preparation for a potential expansion of military operations.
Data-wise, the University of Michigan Consumer Sentiment for July improved. From 50.7 to 54, due to lower gasoline prices at the pump, the report revealed. Inflation expectations for one year dipped from 4.6% in June to 4.2%, and for five years were steady at 3.3%.
Aside from this, Cleveland Fed President Beth Hammack was hawkish and expressed concern about persistent high inflation, which is at the top of her list, adding that “inflation is too high.” Hammack added that the labor market is solid and that “growth numbers are good and consumer spending is stable.”
On Thursday, the Fed’s Vice Chair Philip Jefferson said he is open to raising rates if there is no progress toward disinflation.
Money markets estimated a nearly 61% probability of a Fed rate increase at the October 28 meeting, based on Prime Terminal data. For the July meeting, the central bank is anticipated to keep rates steady, with a 76% probability.
Next week, the US economic docket will feature jobs data and S&P Global Flash PMIs as Fed officials entered their blackout period ahead of the July 29 policy meeting.
XAU/USD technical outlook: Gold recovers but remains bearish
Gold price is bearishly biased as the downtrend extends despite XAU reclaiming the $4,000 mark after bouncing off $3,959. Nevertheless, momentum remains negative as the Relative Strength Index (RSI) is bearish below its 50-neutral level. This signals that further XAU/USD downside is seen, unless buyers clear key technical resistance levels.
For a bearish continuation, the first support is the psychological $4,000. Below this level lies the low of the day at $3,959, ahead of $3,900. A breach of the latter will expose the October 28, 2025 swing low at $3,886.
Conversely, for a bullish reversal, Bullion needs to break above a descending resistance trendline between $4,125 and $4,175. Above this area, and a potential test of the 50-day Simple Moving Average (SMA) at $4,291 is on the cards. Beyond that, the 200-day SMA at $4,495 stands as the next obstacle, and once surpassed it could open the way to $4,500.
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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