The price of gold (XAU/USD) rose by more than 1.50% on Friday on news that Iran and the US are close to signing an agreement to extend a ceasefire for 60 days to allow negotiations on Iran’s nuclear program. At the time of writing, XAU/USD is trading at $4,563, having rebounded from intraday lows of $4,489.
XAU/USD jumps on hopes of easing inflation fears
Sources familiar with the negotiations revealed that if an agreement is reached, the Strait of Hormuz will reopen and the U.S. Navy will lift the blockade, allowing ships to pass freely through the strait. Meanwhile, US President Donald Trump said he would be in the situation room “to make a final decision” on the deal. Reuters reported that a senior Iranian source said the two sides had reached a political agreement on the war, but it had not yet been finalized.
The news sent oil prices lower as West Texas Intermediate (WTI) lost more than 1.50%, with traders seemingly confident of a diplomatic end that would release gasoline near the Persian Gulf and ease the global energy shock.
As a result, inflationary pressures will ease, relieving the burden on major central banks around the world that are considering tightening policy as energy prices rise.
Macroeconomic data shows that the trade deficit has narrowed and economic activity in the Midwest has returned to expansion territory. The Chicago Purchasing Managers’ Index (PMI) rose to 62.7 in May from 49.2 the previous month, topping the forecast of 50.5 and indicating that the manufacturing sector is gaining momentum.
A day ago, economic data showed that the US economy is losing momentum as GDP in the first quarter of 2026 fell to 1.6% from initial estimates of 2%. On the contrary, inflation continues to rise as the Federal Reserve’s (Fed) preferred inflation measure, the Core PCE Price Index, rose 3.3% y/y in April, up from 3.2% in March.
Prime Terminal data shows that money markets have reduced their hawkish stance on the Federal Reserve and now expect the US central bank to leave interest rates unchanged, with the probability of a rate hike at around 42%.
Meanwhile, Fed officials have gone above and beyond, with San Francisco’s Mary Daly stating that “it is important for the Fed to restore price stability, but not at the expense of harming the economy.” Her colleague, Philadelphia Fed President Anna Paulson, said inflation pressures were weighing on the economy and making it arduous for companies to plan for the future.
Earlier, Fed Governor Michelle Bowman said disinflation had slowed and that she might change policy attitudes if war-induced inflation persisted. Meanwhile, Jeffrey Schmid from the Kansas City Fed indicated that the US central bank must consider ways to further tighten monetary policy, warning against viewing the oil shock as transient.
Next week, gold investors will pay attention to the publication of the ISM industry and services PMI indices and the May publication of non-agricultural employment data.
XAU/USD Technical Analysis: Gold Price Above $4,500 Including 20-Day SMA
The gold price has clearly broken the $4,500 level and the falling resistance trend line, opening the door to breaking key resistance levels.
Buyers are gaining momentum as the relative strength index (RSI), although bearish, is rising, a signal of continued growth.
The 20-day uncomplicated moving average (SMA) provides the first resistance level at $4,588 and then $4,600. Above that is the 50-day SMA at $4,630, followed by the 100-day SMA at $4,798.
On the downside, if XAU/USD breaks below $4,500, the first support will be at $4,450, opening the door to a 200-day SMA at $4,399 followed by an intraday low at $4,366.
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 utilize 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 secure 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 forceful dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
