Gold (XAU/USD) remains on the defensive during Tuesday’s Asian session, although it lacks further selling and is trading in a broader range from the previous day. Hopes for a last-minute deal between the U.S. and Iran are fading ahead of President Donald Trump’s Tuesday evening deadline to reopen the Strait of Hormuz. This favors the status of the global reserve currency of the US dollar (USD) and puts some pressure on this commodity. In addition, expectations of higher interest rates worldwide appear to be another factor weakening the unprofitable yellow metal.
Investors now seem confident that the war-induced rise in energy prices will revive inflationary pressures and force major central banks, including the US Federal Reserve (Fed), to adopt a more hawkish stance. In fact, oil prices hit a four-week high after Trump escalated his rhetoric against Iran and threatened to decimate civilian infrastructure if the deadline passed without an agreement. In response, an adviser to Iran’s parliament speaker, Mohammad Bagher Ghalibaf, stressed that Iran would not budge and said Trump had about 20 hours to surrender or his allies would return to the Paleolithic era. This raises the risk of further escalation of conflicts in the Middle East and continues to support higher oil prices.
Meanwhile, data from the Institute for Supply Management (ISM) showed on Monday that the services PMI index was lower than market expectations and fell to 54 in March from 56.1 in the previous month. indicating some loss of dynamics. Additional details from the report revealed that inflationary pressures have intensified, with the price paid index rising to 70.7 from 63. This culminates an upbeat U.S. nonfarm payrolls (NFP) report last Friday that signaled labor market resilience and reinforced bets that the Fed will keep interest rates higher for longer to combat inflation. The outlook, on the other hand, favors USD bulls and suggests that the path of least resistance for the gold price is down. Traders now expect a modern impulse from US macro data.
XAU/USD 4-hour chart
Gold bears may wait for a break below $4,600 before realizing further losses
The short-term bias is slightly bearish as the XAU/USD pair remains below the descending 200-period uncomplicated moving average (SMA) on the 4-hour chart. The moving average convergence divergence (MACD) histogram remains negative and the line is below the signal and oscillating around the zero line, suggesting continued downward pressure but without powerful momentum. Moreover, the relative strength index (RSI) around 49 shows neutral dynamics, matching the consolidation tone in the broader bearish context.
Immediate resistance appears near the 38.2% Fibonacci retracement level of the March decline, at $4,607, and a sustained break above will open the way towards the $4,763, or 50.0%, retracement level. As long as the gold price remains below this recent barrier and the distant 200-period SMA, gains will remain vulnerable to a bullish sell-off. On the other hand, initial support is seen around the recent swing area at $4,600, with a break to the downside exposing the 23.6% Fibo. The retracement level is $4,416, which represents another bear target where buying interest on the dip could be an attempt to stabilize the previous metal.
(The technical analysis for this story was written with the lend a hand of an AI tool.)
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 protected 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 favor the precious metal.
The price may change 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 powerful dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
