Gold price plunges as Oil shock sends yields soaring

XAU/USD tumbles as Fed hike bets punish bullion demand

Geopolitics continue to drive price action as the US-Iran conflict resolution seems to have stalled, even though US allies in the Gulf are pushing for a last effort to strike a deal that could satisfy both parties. In the meantime, tensions remained high, even though US President Donald Trump said he refrained from attacking Iran on Tuesday.

Iranian media revealed that Tehran’s last proposal reportedly remains unchanged from its previous offer, delaying talks over uranium enrichment.

Oil extended its rally to its fourth straight day, with West Texas Intermediate (WTI) up 1.57% at $104.07 per barrel, despite Trump’s optimism of reaching an agreement with Tehran. Recently, he told reporters that “I was an hour away from making the decision to go today,” hinting at a resumption of the conflict.

The energy shock has increased the likelihood that major central banks would need to step in and raise interest rates. The latest inflation readings,particularly in the US, with the Consumer Price Index (CPI) at 3.8% and the Producer Price Index (PPI) at 6%, pushed US Treasury yields higher, with the 30-year bond yield surpassing the 5% threshold, a level last seen in 2007.

Consequently, the Greenback is aiming higher. The US Dollar Index (DXY), which tracks the buck’s performance against a basket of six currencies, is up 0.31% at 99.26.

Money markets had priced a 50% chance that the Federal Reserve (Fed) would increase borrowing costs once, towards the end of the year, according to Prime Terminal data.

The US economic schedule will feature speeches by Fed officials, the minutes of the last FOMC monetary policy meeting and housing data.

XAU/USD technical analysis: Gold is neutral-to bearish biased, eyes on 200-day SMA

Gold is poised to consolidate further, capped on the upside by a confluence of technical resistance levels, including two-resistance trendlines and Simple Moving Averages (SMAs) looming above $4,600.

The Relative Strength Index (RSI) indicates that bears are in charge, suggesting the path of least resistance is downwards.

For a resumption of the downtrend, Gold must clear the $4,500 mark. Once surpassed, the next stop would be the May 19 low of $4,464, followed by the $4,400 milestone. A breach of the latter, and a move towards the 200-day SMA at $4,334 is on the cards.

On the flip side, if XAU/USD clears $4,550, it opens the door to testing the confluence of an upward and a downward resistance trendline that coincides around $4,600. If those levels are taken out, the next area of interest would be the 20-day SMA at 4,638, ahead of challenging the 50-day SMA at $4,704.

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.

FXStreet

100만 명이 넘는 사용자가 FXStreet를 통해 실시간 시장 데이터, 차트 도구, 전문가 인사이트, 포렉스 뉴스를 이용합니다. 포괄적인 경제 캘린더와 교육 웨비나는 트레이더가 정보를 유지하고 신중한 결정을 내리도록 돕습니다. FXStreet는 바르셀로나 본사와 전 세계 지역에 걸쳐 약 60명의 팀으로 구성되어 있습니다.

Item 1 of 0