Gold rebounds from one-week low as Israel-Lebanon truce pressures safe-haven USD

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Gold rebounds from a one-week low as the Israel-Lebanon truce undermines the safe-haven USD.
The US-Iran standoff keeps geopolitical risk premium in play and should limit deeper USD losses.
Fed rate hike bets further favor USD bulls and might cap the upside for the non-yielding commodity.

Gold (XAU/USD) gains some positive traction on Thursday and climbs to the $4,475 area during the Asian session, reversing a major part of the previous day's slide to a one-week low. The Israel-Lebanon truce prompts some profit-taking around the US Dollar (USD) and supports the commodity. That said, the lack of a breakthrough in US-Iran diplomatic negotiations and renewed hostilities in the Middle East keep geopolitical risks in play, which should help limit USD losses. Furthermore, expectations that elevated oil prices can accelerate inflation and keep interest rates higher for longer warrant caution before placing aggressive bullish bets on the non-yielding yellow metal.

Israel and Lebanon agreed to implement a ceasefire after US-led talks in Washington on Wednesday. The joint statement said on Wednesday that the ceasefire was contingent on a complete cessation of fire by Iran-backed Hezbollah as well as the evacuation of the group’s operatives from southern Lebanon. Adding to this, the Republican-led US House of Representatives approved a resolution that seeks to block President Donald Trump from taking further military action in Iran. This raises hopes for a deal to end a three-month-old US-Israeli war with Iran, triggering a modest USD pullback following the overnight strong move up to its strongest level since April 7 and benefiting the Gold.

Meanwhile, a report by The Jerusalem Post suggests that the diplomatic engagement between the US and Iran hits a roadblock amid Tehran's rigid demand for the immediate unfreezing of capital at the very start of the process. Adding to this, senior US officials remain firm that the US will not unfreeze any funds at the outset without a significant Iranian move on the nuclear issue and the Strait of Hormuz, keeping a lid on the latest optimism. This, along with expectations for a hawkish US Federal Reserve (Fed), might hold back the USD bears from placing aggressive bets and cap any further appreciation for the Gold price, which remains well below the $4,500 psychological mark.

Traders now look to the release of the US Weekly Jobless Claims data and speeches by influential FOMC members for some impetus later during the North American session. The focus, however, will remain on the US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday, which should provide more cues about the Fed's policy path. Apart from this, the incoming geopolitical headlines might continue to infuse volatility across the global financial markets, which, in turn, will drive the USD and the Gold price in the near-term.

XAU/USD 4-hour chart

Gold might struggle to capitalize on intraday gains amid a bearish technical setup

From a technical perspective, the XAU/USD pair maintains a bearish near-term bias within a downward parallel channel and stays below the 100-period simple moving average (SMA) on the 4-hour chart. The latter is pegged at roughly $4,533, which now acts as overhead resistance.

Momentum indicators back this cautious tone, with the Relative Strength Index near 44 and the Moving Average Convergence Divergence (MACD) below zero and its signal line. This, in turn, suggests that rallies are likely to struggle while the broader downtrend remains intact.

Meanwhile, the channel’s lower boundary around $4,314 offers the main support level, and a clear drop through this floor would open the way for a deeper retracement within the broader bearish setup.

(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.