Gold looks to build strength above $5,400 as Middle East tensions boost safe-haven demand

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Gold (XAU/USD) touches a fresh high since late January during the early European session on Monday, which bulls now looking to build on the momentum beyond the $5,400 mark amid the global flight to safety.

Gold opens with a bullish gap as escalating Middle East conflict boosts safe-haven assets.
The intraday move up seems unaffected by a strong pickup in demand for the US Dollar.
Stagflation fears further underpin the XAU/USD pair and contribute to the positive move.

A dramatic escalation of geopolitical tensions in West Asia over the weekend unsettles global markets. In fact, the US and Israel launched a coordinated military strike on Iran, killing Supreme Leader Ayatollah Ali Khamenei. Adding to this, Iran's Islamic Revolutionary Guard Corps (IRGC) Navy announced the closure of a critical maritime chokepoint – the Strait of Hormuz – and raised the risk of a protracted war in the Middle East. This, in turn, provides a strong boost to the traditional safe-haven Gold at the start of a new week.

Meanwhile, the US Producer Price Index (PPI), released on Friday, revived concerns about still sticky inflation. Furthermore, slowing economic growth creates a scenario where the Federal Reserve (Fed) cannot cut interest rates without reigniting inflation or hold without slowing the economy further. This turns out to be another factor underpinning the non-yielding Gold, though a strong intraday US Dollar (USD) rally to the highest level since January 23 might cap further gains.

Traders this week will confront important US macro releases, scheduled at the beginning of a new month, starting with the ISM Manufacturing PMI later today. This will be followed by the ADP report on private-sector employment and the ISM Services PMI on Wednesday, and the closely-watched Nonfarm Payrolls (NFP) report on Friday. The focus, however, will remain glued to geopolitical developments, which will have a significant impact on the global risk sentiment and play a key role in driving demand for the safe-haven Gold.

Gold needs to find acceptance above $5,400 to back the case for further gains

Against the backdrop of last week's breakout above the $5,200 horizontal barrier, the strong move up on Monday favors the XAU/USD bulls. Moreover, the Moving Average Convergence Divergence (MACD) line stands above its signal in positive territory, with the histogram expanding, which supports building bullish momentum after the latest leg higher.

Meanwhile, the Relative Strength Index at 68.88 hovers just below overbought territory, showing firm but not extreme upside pressure. Initial support emerges near $5,260, where the latest consolidation area begins, followed by a deeper floor around $5,210, guarding the prior congestion band. A break below $5,210 would expose $5,180 as the next downside level.

On the topside, immediate resistance is located at the recent spike high around $5,390. A sustained push above $5,390 would open the way for an extension of the uptrend, while a failure to clear this barrier would keep XAU/USD vulnerable to a corrective pullback toward the cited supports.

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

XAU/USD 4-hour chart

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.