Gold (XAU/USD) rebounds on Thursday as the US dollar (USD) falls in response to fresh news reports regarding a potential US-Iran peace deal and softer US inflation data. At the time of writing, XAU/USD is trading around $4,480, after hitting an intraday low of $4,366 earlier in the day, a two-month low.
On Thursday, Axios reported that the United States and Iran had reached a tentative 60-day agreement to extend the current truce, though the agreement still awaits final approval from U.S. President Donald Trump. This came after US forces carried out a second “defensive” attack on Iranian military facilities this week. In response, Iran’s Islamic Revolutionary Guard Corps (IRGC) said it was targeting a US air base in the Persian Gulf region and warned of “more decisive” action if US “aggression” continued, according to state media.
On the data side, the underlying PCE price index, the Federal Reserve’s (Fed) preferred inflation gauge, rose 0.2% m/m in April, below market expectations and down from the 0.3% gain recorded in March. On a year-over-year basis, core PCE rose to 3.3%, up from 3.2% in March, in line with analyst forecasts.
The U.S. Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is trading near 99.00, losing ground after hitting a seven-week high of 99.54 earlier in the day.
Although negotiations continue to face obstacles regarding Iran’s nuclear program and control of the Strait of Hormuz. Tehran is also pushing for the easing of sanctions and the release of frozen Iranian assets. US President Donald Trump told PBS News on Wednesday that Iran would not receive sanctions relief in exchange for giving up its highly enriched uranium.
Until a final agreement is reached, the decline in the US dollar appears circumscribed. Traders continue to favor the US dollar (USD) over gold as a safe-haven asset. The metal has remained in negative territory since the war broke out in slow February as markets increasingly focus on inflation risks from rising oil prices.
Higher energy costs boost inflationary pressures, increasing expectations that major central banks, including the Fed, will have to keep interest rates higher for longer or even raise them. As a result, U.S. Treasury yields remain elevated, reducing the attractiveness of non-yielding assets such as gold.
Fed Vice Chairman Philip Jefferson said Thursday that rising energy prices pose a “downside risk to economic growth” and a “potential driver of inflation.” He added that the Fed remains “firmly committed to returning inflation to 2%” and noted that recent U.S. economic activity “remains solid.”
Technical analysis: Bears maintain control below key moving averages
XAU/USD is bouncing off the 200-day uncomplicated moving average (SMA) at $4,399 while remaining below the 50-day and 100-day SMAs, keeping the broader bearish outlook intact.
The Relative Strength Index (RSI) is hovering near 40 and the Moving Average Convergence Divergence (MACD) remains in negative territory, which together suggest circumscribed growth momentum and make the rally risk-prone while the metal is trading below its higher moving average.
Upside, initial resistance is seen at the 50-day SMA near $4,630 ahead of the 100-day SMA near $4,801, and only a sustained break above this barrier would alleviate the current bear pressure.
On the other hand, the 200-day SMA near $4,399 represents the first significant support zone where a breakout would expose deeper losses and reinforce a broader corrective phase.
(The technical analysis for this story was written with the facilitate 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 apply 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 protected 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.
