Gold holds near $4,500 as US-Iran talks halt, US Dollar recovers

XAU/USD steadies as traders await Iran response and NFP

The Middle East is entering a phase of evaluation as Iran is studying the US proposal. Iran’s Fars news agency, citing a source, reported that messages between Washington and Tehran stopped a “few days ago,” signaling a halt to negotiations. Worth noting that Iran is seeking a ceasefire that stops Israel’s incursion against Hezbollah.

Risk appetite improved, weighing on the US Dollar's haven appeal, while Oil prices pared earlier losses, rising 0.70% past the $93.00 barrier. US Treasury yields have recovered some ground, though their initial dip was driven by traders speculating on a resolution to the conflict, which could push inflation expectations lower.

The US Dollar Index (DXY), which measures the US Dollar against six currencies, is flat at 99.17. The US 10-year Treasury note yield is up 1 bps to 4.461%.

Jobs data in the US showed that vacancies rose to their highest level in almost two years, easing fears amongst Federal Reserve (Fed) officials about the weakness of the labor market. The US Job Openings and Labor Turnover Survey (JOLTS) rose to 7.618 million in April from 6.887 million in March, exceeding forecasts of 6.88 million.

Cleveland Fed's Beth Hammack noted that the “job data indicates stability” and that the “unemployment rate is near full employment levels.” However, she expressed ongoing concerns about inflation, suggesting that the Fed might need to act “soon” if inflation persists.

Given the broader backdrop, Gold seems poised to consolidate further amid the lack of a fresh catalyst and an increased likelihood that the US and Iran might strike a deal in the near term. In that event, the yellow metal could be underpinned by falling Oil prices and speculation for a less hawkish US central bank.

Traders' attention turns to the release of May’s Nonfarm Payrolls report on Friday, but on Wednesday, the markets will be interested in the Fed’s Beige Book and the ISM Services PMI.

XAU/USD technical outlook:

Although the Gold price reclaimed the $4,500 mark, it failed to clear the current week’s peak, opening the door to further downside. The Relative Strength Index (RSI) shows that momentum remains bearish, opening the door for further downside.

If XAU/USD clears the $4,450 area, sellers could push prices towards the 200-day Simple Moving Average (SMA) at $4,416. On further weakness, the next stop would be $4,400, followed by the March 23 daily low of $4,098.

Upwards, the first area of interest is $4,500, followed by the 20-day SMA at $4,580. A breach of the latter will expose $4,600.

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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