Gold holds steady as USD rally pauses, US-Iran conflict supports demand

Gold steadies as USD rally pauses amid Middle East tensions

Gold tumbled 4.4% on Tuesday, while Silver (XAG/USD) slid about 8.4%, as a stronger USD weighed on metals. The decline accelerated after prices slipped below key technical support levels, triggering stop-loss orders and broad liquidation. The sell-off, however, proved short-lived as rising global and economic uncertainty kept investors’ risk appetite subdued.

The Middle East conflict enters its fifth day, with the US and Israel stepping up air and missile strikes across Iran. Tehran has responded with missile and drone attacks on US bases and allied facilities in the Gulf.

As the war escalates, disruptions to Oil flows through the Strait of Hormuz are pushing energy prices higher, raising concerns about the inflationary impact on the global economy.

US President Donald Trump tried to calm markets, saying the US “will begin escorting tankers through the Strait of Hormuz as soon as possible” if necessary. In a post on Truth Social on Tuesday, he added that Washington would provide political risk insurance for ships traveling through the Gulf to “ensure the FREE FLOW of ENERGY to the WORLD.”

Fed rate-cut bets slip below 50 basis points by year-end

Growing inflation concerns are also prompting traders to reassess the Federal Reserve’s (Fed) monetary policy outlook. Markets now price in at least 50 basis points (bps) of interest rate cuts by December, according to the CME FedWatch tool, which could act as a headwind for non-yielding assets such as Gold.

Data released on Wednesday showed US private sector employment rose by 63K in February, beating expectations of 50K and accelerating from the 11K increase recorded in January, according to the latest ADP Employment Change report.

The US ISM Services Purchasing Managers' Index (PMI) rose to 56.1 in February from 53.8 in January, beating expectations of 53.5. Meanwhile, the S&P Global Composite PMI eased to 51.9 in February from 52.3.

Technical analysis: XAU/USD stabilizes near $5,100 after pullback from recent highs

XAU/USD’s near-term outlook appears neutral to mildly bearish after prices retreated from the upper Bollinger Band on the 4-hour chart and are now oscillating just below the mid-band. However, the downside remains limited as prices found support near the lower Bollinger Band around $5,057.

The RSI (14) is stabilising after nearing oversold territory but remains below the 50 mark, suggesting momentum remains tilted to the downside.

The Moving Average Convergence Divergence (MACD) line flattens below the signal line, with the negative histogram contracting, which suggests waning bearish pressure.

On the upside, immediate resistance is seen near $5,200, ahead of the mid-Bollinger Band around $5,259, followed by the upper Bollinger Band near $5,461.

On the downside, initial support lies in the $5,100-$5,000 zone. A decisive break below this range could expose the next support levels near $4,850 and $4,650.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.