Gold eases from four-week top as Hormuz risks temper USD weakness
- Gold struggles to capitalize on a modest Asian session uptick to a four-week high.
- Hormuz risks eased the recent USD selling bias, which caps gains for the commodity.
- Iran diplomacy hopes and receding Fed rate hike bets keep a lid on the USD bounce.
Gold (XAU/USD) hits a nearly four-week high during the Asian session on Wednesday, though it lacks follow-through buying and currently trades just below the $4,850 level, nearly unchanged for the day. The US Dollar (USD) selling seems to have abated for the time being, and is seen acting as a headwind for the commodity. However, hopes for Iran diplomacy and diminishing odds for a rate hike by the US Federal Reserve (Fed) keep the USD bulls on the sidelines, supporting the precious metal.
US Vice President JD Vance, speaking at a public event, again struck a cautiously optimistic tone and said that Washington is pursuing a broader grand bargain aimed at reshaping Iran’s economic integration with the world. Furthermore, United Nations (UN) Secretary-General António Guterres told reporters on Tuesday that the resumption of US-Iran talks is highly probable. The optimism over diplomatic efforts to extend the US-Iran ceasefire has been a key factor behind the recent USD decline to its lowest level since early March, and continues to underpin the Gold.
Meanwhile, data released on Tuesday showed that the US Producer Price Index (PPI) rose to 4% on a yearly basis in March from 3.4% in the previous month. On a monthly basis, the PPI climbed 0.5%, while the gauge excluding Food & Energy was up 3.8% YoY in March. These readings fell short of consensus estimates and eased concerns about the inflationary impact of the war-driven surge in energy prices, tempering hawkish expectations. The resultant decline in US Treasury bond yields undermines the USD and validates the positive outlook for the non-yielding Gold.
However, the situation remains fragile as the path to a durable agreement remains uncertain on the back of the instability in the Strait of Hormuz. Iran's ambassador to the UN described the US blockade, which took effect on Monday, as a grave violation of Tehran's sovereignty. This could jeopardize the already fragile ceasefire. Moreover, Iran’s Islamic Revolutionary Guard Corps (IRGC) has vowed to retaliate, keeping geopolitical risks in play. This could benefit the USD's reserve currency status and contribute to capping any further appreciation for the Gold price.
XAU/USD 4-hour chart
Gold bulls now await acceptance above 200-period SMA pivotal resistance on H4
The XAU/USD pair is holding a constructive bullish bias and looking to build on momentum beyond the 200-period Simple Moving Average (SMA) pivotal resistance on the 4-hour chart. Meanwhile, momentum remains strong, with the Relative Strength Index (RSI) at 65.5, edging toward overbought territory, and the Moving Average Convergence Divergence (MACD) rising in positive territory. This hints that bullish pressure persists but may be vulnerable to fatigue on further gains.
In the meantime, initial resistance is seen at the 61.8% Fibonacci retracement level at $4,912.54, and a sustained break above this level would open the way toward the 78.6% retracement at $5,134.37, ahead of the cycle high at $5,416.94. On the downside, the 50% retracement level of the March downfall reinforces the underlying floor at $4,756.73. A convincing break below this would expose deeper supports at the 38.2% retracement level at $4,600.92 and the 23.6% level at $4,408.14, where buyers would be expected to regroup on a more pronounced correction.
(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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