Gold holds flat as US CPI risk offsets ceasefire optimism

XAU/USD steadies as yields and inflation fears cap gains

Tensions in the Middle East remain high, with no clear outcome of the US-Iran talks reaching a deal. US President Donald Trump demanded that both Israel and Iran stop shooting and added that negotiations on a peace deal were ongoing. Still, US equities are rallying and, due to their positive correlation with Gold prices, are underpinning the yellow metal.

Strong US NFP report boosts the US Dollar

Last Friday’s stronger-than-expected Nonfarm Payrolls report drove Gold prices to a near-5% drop in the week. This week traders are eyeing the release of the US Consumer Price Index (CPI), which is expected to rise by 4.2% YoY in May, following an already high April print of 3.8%.

Worth noting that Oil prices are gaining over 1% as reflected by the US crude oil benchmark, West Texas Intermediate (WTI). However, a quick resolution of the conflict could push energy prices lower, easing inflationary pressures and opening the door to lower interest rates.

In the meantime, the US Dollar Index (DXY), which tracks the value of the American currency against six other currencies, is flat around 100.00.

US Treasury yields are also capping bullion’s advance, with the 10-year T-note yield up two basis points at 4.552%.

Fed expected to hike instead of cutting

Given the backdrop and expectations of a higher US inflation print, investors have priced in 24 basis points of Federal Reserve tightening by the end of 2026, according to Prime Terminal data.

Data-wise, the New York Fed Survey of Consumer Expectations in May showed that inflation expectations dipped from 3.6% to 3.5% in one year, and for three and five years were unchanged at 3.1% and 3%, respectively.

On Tuesday, the US economic docket will feature the ADP Employment Change 4-week average and housing data.

XAU/USD technical outlook: Gold mildly bearish below the 200-day SMA

Gold price seems to be consolidating yet tilted to the downside after falling below the trend-setter 200-day Simple Moving Average (SMA) at $4,436. Momentum, as measured by the Relative Strength Index (RSI), suggests sellers are in charge, with the index flatlining around 34.05 over the last few days. Hence, the path of least resistance is for XAU to drift lower.

If XAU/USD drops below the Monday low of $4,268, the next support is $4,200; below this, the next stop is the March 23 cycle low of $4,098. Below this level, the next area of interest would be the $4,000 figure.

On the upside, Gold must reclaim the 200-day SMA at $4,436. A breach of the latter will expose the $4,500 mark, followed by the $4,550 psychological level. Above this area, the next stop would be the 50-day SMA at $4,623, followed by the 100-day SMA at $4,792.

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.