Gold (XAU/USD) is paring earlier intraday losses on Thursday as the US dollar loses momentum, but gains remain narrow amid expectations for higher and longer interest rates fueled by oil-led inflation.
At the time of writing, XAU/USD is trading around $4,730, having hit an intraday low of $4,684. Meanwhile, the US Dollar Index (DXY), which tracks the dollar’s value against a basket of six major currencies, is trading around 98.57 after hitting an intraday high of 98.80.
Shipping disruptions in Hormuz keep inflation fears alive
Tensions are rising in the Strait of Hormuz as the route remains under a dual blockade by the US and Iranian navies. US President Donald Trump said on Truth Social that “we have complete control over the Strait of Hormuz and no ship can enter or exit without the permission of the United States Navy.” He also added that he had ordered the Navy “to fire on any boat laying mines in Hormuz.”
Meanwhile, The Washington Post, citing a Pentagon assessment, reported that it could take up to six months to completely remove mines from waterways, underscoring the risk of long-term disruptions to global oil supplies.
The Islamic Revolutionary Guard Corps (IRGC) seized two ships in the strait on Wednesday, according to shipping companies and the semi-official Tasnim news agency.
Rising oil prices, fueled by these disruptions, continue to stoke inflation concerns around the world, increasing the likelihood of “higher for longer” interest rate conditions at major central banks, including the Federal Reserve (Fed). While gold is typically seen as a hedge against inflation, higher borrowing costs tend to negatively impact demand for non-yielding assets as investors move toward income-producing assets such as bonds.
Markets remain skeptical that the United States (US) and Iran will resume negotiations any time soon. This is despite Trump’s announced extension of the ceasefire, which Iranian officials have not formally accepted. Tehran criticized Washington’s decision to maintain the naval blockade, calling it a key obstacle to negotiations.
On the data side, initial jobless claims in the U.S. rose to 214,000, above the forecast of 212,000. and compared to the previous 208 thousand The flash S&P Global Manufacturing PMI rose to 54 in April from 52.3 in March, a 47-month high, while the services PMI improved to 51.3 from 49.8, hitting a two-month high.
Technical Analysis: XAU/USD Trades Below Bollinger Midline, Downside Risk Remains
On the 4-hour chart, the XAU/USD pair remains subdued in the near term, trading below the 20-period uncomplicated moving average (Middle Bollinger Band) around $4,756, reinforcing the bearish bias, even though it still remains comfortably above lower band support near $4,677. The relative strength index (14) around 41 indicates a decline, suggesting that sellers have maintained their advantage, while the modest average true range (14) around 38 indicates narrow but persistent volatility.
On the upper side, initial resistance lines up with the 20-period SMA/Bollinger Middle Band at around $4,756, with another hurdle in the Upper Bollinger Band near $4,834, where a failure would keep a broader corrective tone intact. On the other hand, immediate support appears at the lower Bollinger Band around $4,677; a decisive break below this threshold would open the way to a deeper pullback, while a sustained defense of this area could encourage a consolidation phase.
(The technical analysis for this story was written with the assist of an AI tool.)
Frequently asked questions about inflation
Inflation measures the augment in prices of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a monthly (m/m) and annual (y/y) basis. Core inflation excludes more volatile items such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure economists focus on, and it is the level aimed at by central banks, which are required to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (m/m) and year-on-year (y/y) basis. Core CPI is the figure that central banks target because it does not include variable spending on food and fuel. When core CPI rises above 2%, it typically results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
While it may seem counterintuitive, high inflation in a country causes the value of its currency to augment, and vice versa for lower inflation. This is because the central bank usually raises interest rates to combat higher inflation, which attracts more capital inflows from around the world from investors looking for a lucrative place to put their money.
Historically, gold was the asset that investors turned to during times of high inflation because it held its value, and while investors will often continue to buy gold for its safe and sound haven property in times of extreme market turmoil, in most cases this is not the case. This is because when inflation is high, central banks raise interest rates to combat it. Higher interest rates are bad for gold because they augment the opportunity cost of holding gold compared to interest-bearing assets or putting your money in a deposit account. On the other hand, lower inflation is usually good for gold because it lowers interest rates, making the dazzling metal a more viable investment alternative.
