Gold (XAU/USD) attracts some sellers during the Asian session on Monday, though it lacks bearish conviction and shows some resilience below the $4,600 mark. Major central banks, including the US Federal Reserve (Fed), have turned hawkish in the wake of concerns that energy shocks stemming from geopolitical tensions in the Middle East would revive inflationary pressures. This, in turn, is seen as a key factor undermining demand for the non-yielding yellow metal.
US President Donald Trump announced a plan to guide ships stranded in the Gulf through the Strait of Hormuz under a project called “Project Freedom” and also warned that if this process is disrupted, it will be dealt with forcefully. Top Iranian lawmaker Ebrahim Azizi said that any US interference in the strategic waterway will be considered a violation of the ceasefire. Adding to this, Iran’s Islamic Revolutionary Guard Corps (IRGC) accused the US of failing to honour agreements and said that renewed hostilities are likely. This casts doubt over diplomatic efforts to end the war amid a lack of progress in US-Iran peace talks and helps limit the downside for Crude Oil prices.
This comes on top of the US macro data released last Thursday, which indicated that inflation accelerated in March and reaffirms expectations that the US central bank could keep rates unchanged well into next year. Furthermore, the Fed’s decision to hold its key policy rate unchanged at 3.50%-3.75% saw the highest number of dissents since 1992, with three policymakers voting against the accommodative tone in the policy statement. Adding to this, Minneapolis Fed President Neel Kashkari said on Sunday that a prolonged Iran conflict increases inflation risks and economic damage. Kashkari also raised the possibility of moving rates higher, citing uncertainty around all aspects of the war.
The hawkish outlook, in turn, assists the US Dollar (USD) in attracting some dip-buyers following a modest bearish gap at the start of a new week, which is seen as another factor weighing on the Gold price. The lack of follow-through selling, however, warrants some caution for the XAU/USD bears and positioning for further losses. Investors now look forward to this week’s important US macro data scheduled at the start of a new month, including the closely-watched US Nonfarm Payrolls (NFP) report on Friday, for some meaningful impetus. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the precious metal remains to the downside.
XAU/USD 1-hour chart
Gold needs to find acceptance below $4,600 to back the case for further losses
From a technical perspective, the Moving Average Convergence Divergence (MACD) remains below the zero line with a negative reading on the 1-hour chart and hints that downside pressure persists. That said, the Relative Strength Index (RSI) at 49.60 is broadly neutral. Hence, a clear drop through the $4,600 mark, or the 23.6% Fibonacci retracement level of the downfall from the April swing high, is needed to back the case for deeper losses toward the broader structural low anchored near $4,512.28.
On the topside, initial resistance is located at the 200-period EMA at $4,650.47, followed closely by the 38.2% Fibonacci retracement at $4,655.61. A sustained strength above this cluster would expose the 50.0% retracement at $4,699.88 and the 61.8% level at $4,744.15, ahead of higher barriers at $4,807.19 and $4,887.48.
(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.
