Gold (XAU/USD) struggles to capitalize on its modest Asian session uptick and trades below a fresh two-week high, levels just above the $4,200 mark, touched this Monday. The US Dollar (USD) attracts some safe-haven flows amid uncertainties stemming from tensions in the Strait of Hormuz and acts as a headwind for the bullion. However, receding bets for rate hikes by the US Federal Reserve (Fed) hold back USD bulls from placing aggressive bets. Furthermore, persistent central bank buying turns out to be another factor lending support to the non-yielding yellow metal.
Despite a fragile US-Iran interim agreement, tensions surrounding the Strait of Hormuz remain elevated as Iran seeks to tighten control over the strategic waterway. In fact, Iran’s ambassador to China said on Saturday that Tehran plans to introduce new service fees for ships passing through the strategically important waterway. The US, however, had rejected the idea of Iran charging vessels for using the strait. This keeps the geopolitical risk premium in play and helps the Greenback to regain positive traction at the start of a new week, which, in turn, is seen undermining the Gold.
Meanwhile, traders trimmed their bets for interest rate hikes by the US Federal Reserve (Fed) in the wake of unimpressive US monthly employment details, released last Thursday, which pointed to softening labor conditions. Furthermore, easing inflation fears in the face of the recent slump in Crude Oil prices could allow the US central bank to adopt a more patient stance, taking the edge off expectations for a prolonged higher-for-longer interest rates. This, in turn, might hold back the USD bulls from placing aggressive bets and limit any meaningful corrective fall in the Gold price.
Meanwhile, a World Gold Council survey highlighted last week that central banks are increasingly turning to Gold as protection against financial crises, inflation, and geopolitical risks. Moreover, almost 90% of respondents expect global central banks’ gold reserves to increase over the next year. Adding to this, the latest reserve report published by the European Central Bank (ECB) revealed that Gold has officially overtaken US Treasuries in global reserve allocations. Furthermore, the People’s Bank of China (PBoC) added another 320,000 ounces of Gold in May, marking its 19th straight month of increase in its Gold reserves.
Traders now look forward to the US economic docket, featuring the release of ISM Services PMI. Apart from this, speeches from influential FOMC members will drive the USD demand later during the North American session and provide a fresh impetus to the precious metal. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for Gold is to the upside. Hence, the intraday pullback is likely to be bought into and remain limited, warranting caution before confirming that the recent recovery from the year-to-date low has run out of steam.
XAU/USD 4-hour chart
Gold bulls have the upper hand as 100-SMA on H4 and 23.6% Fibo. breakout remains in play
Friday’s breakout through the 100-period Simple Moving Average (SMA) on the 4-hour chart and a subsequent move beyond the 23.6% Fibonacci retracement level of the April-June fall were seen as key triggers for the XAU/USD bulls. Moreover, the still-elevated Relative Strength Index (RSI) around 63 and a positive Moving Average Convergence Divergence (MACD) reading hint that upside momentum remains constructive, even as the Gold consolidates just off recent highs.
Hence, weakness below the 23.6% Fibo. level around $4,164 is likely to find support near the 100-period SMA. The latter should provide a floor near $4,147, though a convincing break below would expose the structural low region at $3,940. On the topside, initial resistance is seen at the 38.2% retracement near $4,302, followed by the 50% retracement level at about $4,415 and the 61.8% Fibo. near $4,527. Further up, the 78.6% Fibo. at $4,686 defines the broader bullish extension zone ahead of $4,889, or the April swing high.
(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.
