The price of gold (XAU/USD) rises to a weekly high in early European trading on Monday. Precious metal prices rebound after the United States (US) and Iran reach an agreement to end the conflict, easing concerns about inflation and higher interest rates.
Washington and Tehran said on Sunday that they had reached an agreement that would take effect on Friday. US President Donald Trump announced that the United States is lifting the naval blockade of Iranian ports and the Strait of Hormuz will be reopened after signing the agreement.
Trump added that the agreement he reached with Iran would ultimately ensure that the Strait of Hormuz would be “permanently free,” according to the New York Times. The United Kingdom (UK), France, Germany and Italy said they were ready to lift sanctions imposed on Iran in response to steps on its nuclear program after the United States and Iran reached an agreement to end the war. Hopes for a peace framework agreement to end the U.S.-Iran war are providing some support for the yellow metal.
Meanwhile, Iran’s deputy foreign minister, Kazem Gharibabadi, said on Sunday that the 60-day negotiations between the U.S. and Iran would depend on the U.S. fulfilling three commitments. These commitments include “lifting and ending the naval blockade,” “ending the state of war and military operations,” and “releasing frozen Iranian funds.”
Any sign of renewed tensions in the Middle East could send oil prices higher, fueling inflation fears and raising expectations that interest rates will stay on hold for longer. It is worth noting that gold is often used in the face of geopolitical uncertainty, but does not earn interest, making it less attractive when interest rates are high.
According to CME’s FedWatch tool, markets have priced the likelihood of a U.S. Federal Reserve (Fed) rate hike in December this year following the peace agreement at almost 64%, up from 69% last week.
XAU/USD daily chart
Gold remains capped below the key 100-day SMA on the daily chart
On the daily chart, the XAU/USD pair remains corrective, holding well below the 100-day elementary moving average (SMA) and also below the middle Bollinger Band, which collectively suggests that the upside remains narrow within a broader downtrend. The Relative Strength Index (RSI) near 42 remains below the midline, indicating feeble growth momentum and reinforcing the view that there is a greater likelihood of selling on a rebound while prices trade below these broad levels.
Upside, initial resistance appears in the middle Bollinger Band near $4,415, then in the upper Bollinger Band near $4,685, with the 100-day SMA higher near $4,762 acting as a more strategic barrier in the event of a stronger rebound.
On the other hand, the first noticeable support is seen in the lower Bollinger Band near $4,142, where a breakout would open the door to a deeper pullback towards earlier lows, maintaining a short-term bearish bias while prices trade below the clustered intraday resistance band.
(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 employ 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 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 sturdy dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
