Gold (XAU/USD) is powerful on Tuesday, building on the previous day’s rebound from levels near $5,000. The precious metal is receiving support from a weaker US dollar (USD) and lower Treasury yields, while the ongoing US-Iran war keeps market sentiment cautious and continues to mitigate the negative effects.
At the time of writing, the XAU/USD rate is around USD 5,167, up almost 0.55% on the day, with sellers defending the USD 5,200 level.
War headlines are fueling edged moves in the oil market and global risk sentiment
Markets have digested conflicting headlines about the US-Iran war. On Monday, CBS reported that US President Donald Trump said: “I think the war is basically over,” adding that the United States was “very ahead of schedule.”
Trump also targeted oil prices, saying the United States may waive some oil-related sanctions and send the U.S. Navy to escort tankers through the Strait of Hormuz. “We want to keep oil prices low,” Trump said. “As a result of this trip, they went up artificially.”
However, Iran’s Islamic Revolutionary Guard Corps (IRGC) said this overnight ““We will decide whether to end the war” and warned ships against passing through the Strait of Hormuz.
Trump’s comments, as well as reports that G7 countries are discussing a coordinated release of oil reserves through the International Energy Agency (IEA), lifted market sentiment, sending oil prices plummeting as global stock markets rebounded.
Still, tensions remain high around the Strait of Hormuz as the conflict enters its eleventh day and air attacks continue across the Middle East.
The Fed’s bets on interest rate cuts remain in focus
The decline in crude oil prices – WTI and Brent fell 5.84% and 3.69% respectively on Monday – eased concerns about global inflation, allowing US dollar and Treasury yields to retreat from recent highs as investors continued to price in Federal Reserve (Fed) interest rate cuts in the second half of the year.
According to the CME FedWatch Tool, markets see a 57.2% chance that the Fed will make its first rate cut of 2026 in July, while the odds of a cut in June are around 40.8%.
Looking ahead, a weak U.S. economic calendar will likely keep investors focused on geopolitical developments. ADP’s four-week average employment change is the only noteworthy data on record, with particular emphasis on the Consumer Price Index (CPI) data due on Wednesday and the Personal Consumer Expenditures (PCE) Price Index report on Friday.
Technical Analysis: XAU/USD remains sideways as RSI cools and trend strength weakens
XAU/USD is consolidating in the familiar $5,000-$5,200 range. On the daily chart, the short-term bias remains slightly bullish, with price stabilizing above the 20-day Bollinger Band midline near $5,105, providing immediate support. A sustained break below this zone could trigger a deeper pullback towards the lower Bollinger Band near $4,880.
On the other hand, $5,200 remains the key resistance level, and a strong daily close above this barrier could open the door to a move towards the upper Bollinger Band around $5,330.
Momentum indicators offer a mixed signal on the daily chart. The relative strength index (RSI) stabilized above the 50 level after rebounding from the overbought area, which suggests that the growth momentum will weaken but remain unchanged. Meanwhile, the Average Directional Index (ADX) near 14 indicates weak trend strength, reinforcing the view that XAU/USD may remain in a swing range in the near future.
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 operate 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 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 powerful dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
