Gold holds below two-week top as Iran risks and hawkish Fed bets underpin USD

ARTICOLI POPOLARI

Gold (XAU/USD) kicks off the new week on a subdued note and remains on the back foot below a two-week top, around the $4,600 neighborhood, touched on Friday.

Gold remains on the back foot below a two-week high amid a combination of factors.
Geopolitical risks revive demand for the safe-haven USD and cap the precious metal.
Hawkish Fed bets further act as a headwind for the commodity amid a bearish setup.

Gold (XAU/USD) kicks off the new week on a subdued note and remains on the back foot below a two-week top, around the $4,600 neighborhood, touched on Friday. Persistent geopolitical uncertainties, along with hawkish US Federal Reserve (Fed) expectations, help the US Dollar (USD) regain positive traction, which, in turn, is seen as a key factor acting as a headwind for the commodity. The precious metal, however, manages to hold above the $4,500 psychological mark as trades seem hesitant and opt to wait for further progress in US-Iran peace talks.

Iran's Foreign Minister, Abbas Araqchi, told state media on Sunday that talks and message exchanges with the US are ongoing, though he cautioned against reading too much into unconfirmed reports about the negotiations. Earlier, Iran’s chief negotiator, Mohammad Bagher Qalibaf, stated that the country will not accept any agreement until its national rights are fully secured. Apart from this, reports suggest that the US had hardened its negotiating position with Iran, raising fresh uncertainty over diplomatic efforts to end a three-month-old conflict in the Middle East.

Moreover, differences over Iran's nuclear program and the Strait of Hormuz continue to complicate efforts to reach a deal. US President Donald Trump reportedly requested that edits related to the strategic waterway and enriched uranium be made to the US-Iran deal aimed at bringing an end to the fighting. Proposals are still being exchanged through Pakistani and other regional mediators, but it remains unclear if the sides are making much progress. Meanwhile, Israel expanded its ground assault in Lebanon in the battle with the Iranian-backed Hezbollah militant group.

Reuters reported that Israeli forces seized the 900-year-old Beaufort Castle and are now operating past the Litani River. This expansion marks Israel’s deepest incursion into Lebanon since its withdrawal in the year 2000 and keeps geopolitical risk premium in play, underpinning the safe-haven USD. Meanwhile, the latest development triggers a goodish recovery in Crude Oil prices from over a one-month low, touched on Friday. This revives inflation fears and bolsters Fed rate hike bets. This further benefits the buck and contributes to capping the non-yielding Gold.

The market attention now shifts to the important US macro data, scheduled at the start of a new month. A rather busy week kicks off with the release of the US ISM Manufacturing PMI, due later today. The focus, however, will be on the crucial US Nonfarm Payrolls (NFP) report on Friday, which could influence market expectations about the Fed's policy path and drive the USD demand in the near term. Apart from this, developments surrounding the Middle East crisis might continue to infuse volatility across the global financial markets and influence the Gold price.

XAU/USD daily chart

Gold seems vulnerable while below 50-day SMA and ascending channel confluence resistance

From a technical perspective, the XAU/USD pair is holding a bearish near-term bias as it remains trapped inside a downward parallel channel and below the 50-day Simple Moving Average (SMA). Moreover, moderating Moving Average Convergence Divergence (MACD) histogram together with a sub-50 Relative Strength Index (RSI) around 44 suggest rallies are likely to be sold while momentum stays soft.

However, the commodity last week showed some resilience below the very important 200-day SMA, which still underpins the broader uptrend. This makes it prudent to wait for a convincing break and acceptance below the said MA at $4,411.29 before positioning for a fall towards the channel support near $4,303.42. On the topside, immediate resistance is clustered around the channel’s upper boundary near $4,627.52, reinforced by the 50-day SMA at $4,628.82. A sustained break above this confluence would be needed to ease the current downside pressure.

(The technical analysis of this story was written with the help of an AI tool.)

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.

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