Gold (XAU/USD) is building on a solid rebound this week from the technically crucial 200-day elementary moving average (SMA) near the $4,100 level, a four-month low, and climbing to the $4,600 level during Wednesday’s Asian session. However, the precious metal remains highly sensitive to geopolitical news and volatility is expected to remain elevated as investors react to further developments in the ongoing conflict.
Reports indicate that diplomatic efforts are underway to implement a one-month ceasefire mechanism that would allow the US and Iran to negotiate a plan to end the conflict. This follows US President Donald Trump’s decision earlier this week to delay planned attacks on Iran’s energy infrastructure by five days, citing indirect negotiations fueling hopes for a de-escalation of tensions in the Middle East. Adding to this, Trump said Iran offered a “gift” related to energy flows through the Strait of Hormuz to demonstrate goodwill during negotiations. Optimism weighs on oil prices and eases inflation concerns, easing the bias toward more hawkish central banks and helping underperforming gold attract buyers for a second straight day.
However, the conflict shows no signs of easing – Israel continues to attack the Islamic Republic, and the United States is deploying additional troops to the region. In fact, the Trump administration has deployed thousands of troops from the U.S. Army’s elite 82nd Airborne Division to the Middle East. On the other hand, Iran fired fresh missile fire at Israel, while Gulf countries also reported repeated drone and missile intercepts as fighting intensifies in Lebanon and Iraq. This keeps investors on their toes and limits the decline in oil prices. Moreover, markets continue to factor in inflation risks from elevated energy prices and uncertainty over the trajectory of interest rates, which in turn negatively impacts the gold price.
Meanwhile, investors have almost completely priced in the possibility of further interest rate cuts by the US Federal Reserve (Fed) and are quickly increasing their bet on a hike by the end of this year. The hawkish outlook provides some support for the US Dollar (USD) and could further limit the XAU/USD pair. Therefore, it would be prudent to wait for further sturdy buying before confirming that the gold price has reached a short-term low and preparing for a further appreciation move.
XAU/USD 1-hour chart
Gold bulls are waiting for acceptance above 38.2% Fibo. level, $4,600
From a technical perspective, an intraday break through the 100-hour SMA can be seen as a key trigger for bullish traders. However, the next move higher is stalled near the 38.2% Fibonacci retracement level, down from the March high, requiring caution before taking a position to further strengthen the gold price.
Meanwhile, the moving average convergence divergence (MACD) histogram remains positive with a line above the signal, strengthening the upside momentum. Moreover, the Relative Strength Index (RSI) is hovering around the 60s, showing sturdy but not extreme upside pressure that keeps buyers in check on intraday declines.
A sustained break and acceptance above the $4,600 level will confirm the constructive outlook, paving the way for another upside target near $4,637 en route to the $4,750 mid-zone where a 50.0% retracement caps a broader rebound. The downside is that immediate support is located at $4,470, with stronger demand expected around $4,401 at the 23.6% retracement, where prior consolidation and the Fibonacci structure converge.
A break below $4,401 would weaken the current bullish sentiment and expose a deeper pullback towards the $4,250-$4,300 region, while a hold above these supports would keep the daily uptrend intact.
(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 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 sheltered 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. Despite this, 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.
