According to the newswire, the gold price (XAU/USD) will strengthen above the $4,200 level on Friday as market participants remain positive about a potential US-Iran deal expected to be signed next week. Meanwhile, U.S. households are increasingly positive about the economy. The XAU/USD pair is trading at USD 4,216, which means an raise of 0.11%.
XAU/USD remains stable as deal talk offsets higher yields
Investor sentiment has improved with optimism following news that the conflict in the Middle East could end if Washington and Tehran proceed to sign the Islamabad Memorandum of Understanding (MOU). Speculation is growing about an agreement being signed at the G7 meeting in Geneva, Switzerland, but a spokesman for Iran’s Ministry of Foreign Affairs said Iran’s decision-making bodies are meeting on the memorandum of understanding and that he could not confirm details of the memorandum.
If both sides agree, the Strait of Hormuz will reopen, which could lower energy prices and ease inflationary pressure on major central banks, which have expressed concerns about an energy shock from the conflict.
Central banks such as the Reserve Bank of Australia (RBA) and the European Central Bank (ECB) have raised interest rates by 75 and 25 basis points respectively during the year. However, a quick resolution to the conflict may prevent others such as the Reserve Bank of New Zealand (RBNZ), the Bank of England (BoE) and the Federal Reserve (Fed) from tightening policy.
Still, U.S. Treasury yields are rising slightly, with the 10-year T-bond rising 1.5 basis points to 4.477%, negatively impacting the yellow metal. At the same time, the US Dollar Index (DXY), which measures the performance of the US currency against six currencies, remained steady at 99.77, up 0.06%.
During the day, data showed US households are becoming more positive as US consumer sentiment improved in June from 44.8 to 48.9 in the flash reading, while annual inflation expectations fell from 4.8% to 4.6%.
Earlier this week, U.S. inflation data increased speculation that the Fed may raise interest rates at least once this year. However, since news of a potential U.S.-Iran deal, that number has dropped from about 88% to 67%.
Next week’s U.S. economic report will include a Fed monetary policy decision, the first by up-to-date Chairman Kevin Warsh, the release of the Summary Economic Outlook (SEP) and retail sales.
XAU/USD Technical Outlook: Gold Price Surpasses $4,200 Amid US-Iran War Deal
The gold price is neutral or skewed to the downside, even though it rose 3.50% on Thursday, clearing the way for a move above $4,200. Momentum remains on a downward trend, as shown by the Relative Strength Index (RSI), but its recent break above the 30 level has opened the door for buyers to see higher prices in the near term.
The first key resistance level is $4,250. A breach of the latter will expose the $4,300 level, followed by a 200-day elementary moving average (SMA) at $4,450, before $4,500.
On the other hand, the first support for XAU/USD is at USD 4,200. Below this level are key psychological levels at $4,150, ahead of the June 11 intraday lows of $4,023 and $4,000.
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 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. Still, most of the movements depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAU/USD). A mighty dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
