Gold (XAU/USD) starts the week in the red as renewed tensions in the Middle East lift oil prices and refocus attention on inflation concerns, reinforcing expectations of a Federal Reserve (Fed) interest rate hike later this year.
At the time of writing, XAU/USD is trading around $4,011, down 2.63% on the day, the lowest level since July 1.
Over the weekend, the United States and Iran exchanged missile and drone strikes. Washington struck southern Iran while Tehran targeted U.S. military facilities across the Persian Gulf.
US President Donald Trump said in a Truth Social post that the strait “is OPEN and will remain OPEN, with or without Iran.” Trump added that the United States would act as the “guardian” of the Strait and would receive a 20% cost reimbursement for all cargo transported by water.
US dollar (USD) and crude oil prices started the week higher, putting pressure on precious metals. WTI is trading around $74.50, up over 4% on the day.
The U.S. Dollar Index (DXY), which tracks the value of the dollar against a basket of six major currencies, is around 101.14 after briefly dropping below 101.00 earlier in the day.
The prospect of higher interest rates remains a major headwind for gold. “Stabilizing labor market conditions in the US and persistent inflation will keep federal funds rates at a hawkish price level,” say Brown Brothers Harriman analysts.
Brown Brothers added that markets had fully priced in a 25 basis point (bp) rate hike by the end of the year and a nearly 50 basis point tightening over the next twelve months.
Higher borrowing costs generally weigh on gold, increasing the opportunity cost of holding unprofitable assets.
With the economic calendar largely blank on Monday, investors are now turning their attention to U.S. Consumer Price Index (CPI) data due out on Tuesday. Fed Chairman Kevin Warsh’s congressional testimony will also be closely watched for up-to-date clues about the central bank’s interest rate outlook.
Technical Analysis: XAU/USD remains under pressure, focusing on $4,000
On the daily chart, the XAU/USD pair maintains a bearish bias, trading below the midline of the 20-day Bollinger Band near $4,116. The relative strength index (RSI) is around 38, remaining below the neutral threshold of 50, strengthening the bearish outlook.
Meanwhile, the Average Directional Index (ADX) near 37 indicates that the broader downtrend remains well-defined, suggesting recovery attempts may remain circumscribed unless gold reclaims the mid-Bollinger Band.
Upside, initial resistance appears at the 20-day Bollinger SMA near $4,116, followed by a horizontal barrier at $4,200, followed by an upper Bollinger Band near $4,290 with a stronger barrier at $4,400.
On the other hand, immediate support lies at the horizontal lower level of $4,000, ahead of the lower Bollinger Band centered around $3,942, where a breakout would open the door to a deeper correction phase.
(The technical analysis for this story was written with the assist of an AI tool. Find out more.)
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 exploit 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 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 mighty dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
