Gold rises cautiously as Fed hike bets, US‑Iran tensions and bullish USD cap gains
- Gold catches fresh bids during the Asian session on Tuesday, though the upside seems capped.
- Inflation fears bolster Fed hike bets, which support the USD and should cap the precious metal.
- US-Iran tensions also favor USD bulls and warrant caution before positioning for additional gains.
Gold (XAU/USD) regains positive traction following the previous day's two-way price moves, though it struggles to capitalize on the move and trades below the $4,050 level during the Asian session on Tuesday. Despite a cycle of tit-for-tat strikes between the US and Iran, US Secretary of State Marco Rubio said on Sunday that the US was still open to holding talks with Iran, keeping hopes alive for a potential diplomatic resolution to the conflict. This holds back the US Dollar (USD) bulls from placing fresh bets, which, in turn, is seen as a key factor supporting the commodity.
Investors, however, remain worried about energy-driven inflation, which could force the US Federal Reserve (Fed) to stick to its hawkish stance and support the USD. In fact, restricted traffic through the Strait of Hormuz has caused significant disruptions to global oil supplies. Adding to this, Yemen's Iran-aligned Houthis announced a maritime blockade against Saudi Arabia. This should continue to act as a tailwind for crude oil prices, stoking inflation fears and adding to bets of higher-for-longer US interest rates. According to the CME Group's FedWatch Tool, traders are pricing in around an 83% probability that the Fed will raise borrowing costs by the end of this year. The outlook, in turn, validates the near-term bullish USD undertone and warrants caution before placing aggressive bullish bets on the non-yielding Gold.
Meanwhile, the recent escalation of US-Iran tensions could further benefit the Greenback's reserve currency status and contribute to capping the precious metal. In fact, the US military has carried out a 10th consecutive night of attacks on Iran, with the White House saying the strikes will continue until President Donald Trump decides otherwise. Iran, on the other hand, said that it had launched retaliatory strikes at US military bases and allied infrastructure across the Gulf. This raises the risk of a broader regional conflict, which could lend additional support to the USD. Hence, it will be prudent to wait for strong follow-through buying before confirming that Gold has formed a near-term bottom and positioning for any meaningful appreciation in the absence of any relevant market-moving economic releases on Tuesday.
XAU/USD 4-hour chart
Gold looks to build on 23.6% Fibo. and descending trendline resistance breakout momentum
From a technical perspective, acceptance above the 23.6% Fibonacci retracement level of the downfall from the July swing high and a breakout through a short-term descending trendline favor the XAU/USD bulls. Adding to this, the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) both lean positive, suggesting that bearish pressure is softening.
Despite the constructive setup, Gold keeps the near-term bias tilted bearish while below the 100-period simple moving average (SMA) on the 4-hour chart and a series of Fibonacci retracements. Hence, any subsequent move up is likely to confront an initial hurdle around the 38.2% Fibo. level at $4,052.78, followed by the 100-period SMA at $4,067.29 and the 50.0% retracement at $4,081.40.
The 61.8% level at $4,110.01 should act as a stronger barrier if bulls attempt a further recovery. On the downside, immediate support is seen at the 23.6% retracement and trendline break zone around $4,017, while a more substantial floor emerges at the Fibonacci anchor near $3,960.14, where sellers would likely pause if the current pullback resumes.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
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.
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.
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.
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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