A red-hot inflation report in the United States and rising tensions between the latter and Iran pushed the gold price above $5,260 on Friday, registering a solid gain of over 1.20%. At the time of writing, XAU/USD was trading at $5,261, hitting a one-month high and maintaining gains for the seventh straight month.
XAU/USD Climbs to New Highs as Unresolved US-Iran Talks and Inflation Fears Underpin Safe Haven Buying
Talks between Washington and Tehran ended on Thursday but failed to produce significant progress that could prevent a US strike on Iran. Recently, US President Donald Trump said that he was not satisfied with the way Iran was negotiating, speaking vaguely about the possibility of regime change in the country or not, and added that Tehran forgot to say the golden words: “no nuclear weapons.”
According to NBC News, the US embassy in Jerusalem has allowed non-emergency personnel and families to leave the country, citing security risks. Meanwhile, CNN reported that no intelligence indicates Iran is planning an intercontinental ballistic missile capable of striking the US.
On the data side, the US Producer Price Index rose 2.9% y/y in January, compared to 3% the previous month, but exceeded forecasts of 2.6%. Core PPI, excluding food and energy, rose 3.6% year-over-year from last month’s print and estimates of 3.3% and 3% respectively.
Although market participants are pricing in a rate cut of almost 58 basis points, the first rate cut is expected to be postponed until the Fed meeting scheduled for July 29, with investors suggesting a 29 basis point easing of rates.
What’s on the calendar for the first week of March?
Next week’s US economic report will include the ISM manufacturing and services PMI, February’s ADP employment change, jobless claims, retail sales and February non-farm payrolls data.
XAU/USD Technical Outlook: Gold Rise in Expectation of $5,300
Despite continued growth, the gold price seems ready to consolidate and forget about parabolic upward movements. As XAU/USD reaches USD 5,200, the next area of ​​consolidation lies within the latter and USD 5,300, with higher prices expected.
The relative strength index (RSI) shows that upward momentum is increasing, which opens the door to higher prices.
The first resistance is seen at the level of $5,300. A decisive break marks a move towards $5,400, followed by the January 30 high of $5,450. The next position up was $5,500, breaking the all-time high of nearly $5,600.
Conversely, if gold falls, the first support will be the February 24 intraday low of $5,093. After clearing, the next stop will be the 20-day Simple Moving Average (SMA) at $5,019 before testing $5,000.
Gold FAQs
Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, beyond its luster and apply in jewelry, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it is not tied to any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies in turbulent times, central banks typically diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves may provide a source of confidence in the country’s solvency. According to data from the World Gold Council, central banks added 1,136 tons of gold to their reserves in 2022, worth about $70 billion. This is the highest annual purchase since registration began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US treasury bonds, which are both major reserve assets and safe and sound haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their holdings in turbulent times. Gold is also inversely correlated with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets support the precious metal.
The price may vary due to many factors. Geopolitical instability or fear of a deep recession can quickly cause gold prices to rise due to its safe-haven status. Gold, as a non-yielding asset, tends to rise at lower interest rates, while the higher cost of money tends to weigh on the yellow metal. Still, most of the movements depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAU/USD). A forceful dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
