$4,300: Gold seems vulnerable near March low as geopolitics and Fed hike bets support USD
- Gold adds to Friday’s upbeat US NFP-inspired losses and drops to a fresh low since March.
- Persistent geopolitical uncertainties continue to underpin demand for the safe-haven USD.
- Inflationary concerns fuel hawkish Fed bets and further weigh on the non-yielding bullion.
Gold (XAU/USD) attracts fresh sellers following a modest Asian session uptick to the $4,350-$4,355 area and touches its lowest level since March 23 on the first day of a new week. Renewed hostilities in the Gulf push Crude Oil prices higher, fanning inflationary concerns and bolstering bets for more hawkish central banks. This, in turn, is seen as a key factor undermining demand for the non-yielding bullion. The commodity now seems to have found acceptance below a technically significant 200-day Simple Moving Average (SMA) and remains vulnerable to decline further, with bears awaiting acceptance below the $4,300 mark before placing fresh bets.
The Israel-Iran conflict has entered a dangerous new phase, with both sides exchanging attacks across multiple fronts. Israel said that it carried out fresh strikes on military targets in western and central Iran after the latter fired waves of ballistic missiles at Israel’s Ramat David air base on Sunday night. The tensions have spilled beyond the two countries, with reports of Israeli strikes in southern Lebanon and Iranian military action in northern Iraq, raising fears of a wider regional conflict. The developments threaten a fragile ceasefire and temper hopes for a deal to end a three-month-old war, assisting the safe-haven US Dollar (USD) to preserve its recent strong gains to a two-month high.
Adding to this, the upbeat US Nonfarm Payrolls (NFP) report released on Friday reaffirmed bets that the US Federal Reserve (Fed) will keep interest rates higher for longer. In fact, the US jobs data showed that the economy added 172K new jobs in May, compared to 85K estimated and the previous month's upwardly revised reading of 179K. Additional details revealed that the Unemployment Rate held steady at 4.3%, as anticipated, offsetting the widely expected slowdown in Average Hourly Earnings growth to the 3.4% YoY rate from 3.6% in April. Traders were quick to react and are now pricing in over a 70% chance that the Fed will raise borrowing costs by the end of this year.
The outlook, in turn, is seen as another factor acting as a tailwind for the Greenback, suggesting that the path of least resistance for the Gold price remains to the downside. Moving ahead, there isn't any relevant market-moving economic data due for release from the US on Monday, leaving the USD and the precious metal at the mercy of incoming geopolitical headlines. Later this week, traders will take cues from the US inflation figures – the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Wednesday and Thursday, respectively. Apart from this, the Bank of Canada (BoC) rate decision and the European Central Bank (ECB) meeting should infuse volatility in the financial markets.
XAU/USD daily chart
Gold bears retain control as a breakdown below 200-day SMA remains in play
The XAU/USD pair keeps a bearish bias inside a downward parallel channel and below the 200-day SMA. Adding to this, the Moving Average Convergence Divergence (MACD) indicator sits in negative territory with a widening bearish profile. Meanwhile, the Relative Strength Index (RSI) around 33 suggests persistent downside pressure, though nearing oversold conditions that could slow immediate follow-through.
On the topside, initial resistance is located at the 200-day SMA at $4,436.56, with the channel’s upper boundary near $4,555.49 acting as a stronger cap while the broader downtrend persists. On the downside, the lower band of the descending channel around $4,242.07 offers initial support, and a clear break beneath this floor would open the door to a deeper corrective leg within the prevailing bearish structure.
(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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