Gold (XAU/USD) remains under some selling pressure for the third straight day and drops to sub-$4,400 levels or a fresh two-month low during the Asian session on Thursday. The risk of a further escalation of tensions in the Middle East underpins the US Dollar’s (USD) reserve currency status, which continues to weigh on the commodity. Furthermore, expectations that global central banks will adopt a more hawkish stance to counter rising inflation turn out to be another factor driving flows away from the bullion.
A US official told Reuters that the US military carried out fresh strikes in Iran on Wednesday, targeting a military site that posed a threat to American forces and commercial maritime traffic in the Strait of Hormuz. The US official also said American forces intercepted and shot down multiple Iranian drones that posed a similar threat. Moreover, US President Donald Trump said that he is not satisfied with the terms negotiated with Iran and that he won’t be rushed into a deal, dampening hopes for a diplomatic solution to end a three-month-old Iran war. Furthermore, major US-Iran disagreements over Tehran’s nuclear program and the Strait of Hormuz keep geopolitical risk premium in play, which, in turn, benefits the Greenback and pressures the Gold price.
Meanwhile, the latest developments prompt a modest recovery in Crude Oil prices from over a three-week trough, touched on Thursday, fanning energy-driven inflationary concerns and fueling expectations of rate hikes. According to the CME Group’s FedWatch Tool, traders are pricing in a nearly 50% chance that the US Federal Reserve (Fed) will raise borrowing costs by 25 basis points (bps) by the end of this year and assigning a 60% chance of a rate increase in January 2027. The bets were further lifted by hawkish comments from a slew of influential FOMC members, triggering a fresh leg up in US Treasury bond yields. This turns out to be another factor supporting the USD and contributing to the offered tone surrounding the non-yielding Gold.
Moving ahead, the market focus now shifts to the release of important US macro data– the Preliminary Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index. The crucial PCE Price Index report is considered as the Fed’s preferred inflation gauge and will play a key role in influencing expectations about the central bank’s interest rate trajectory. The outlook, in turn, should drive the USD demand later during the North American session. Moreover, the incoming geopolitical headlines would continue to infuse some volatility across the global financial markets and provide some meaningful impetus to the Gold price.
XAU/USD daily chart
Gold looks to extend the descent further below a technically significant 200-day SMA
From a technical perspective, the XAU/USD pair keeps a near-term bearish tone inside a downward-sloping channel and below the 500-day Simple Moving Average (SMA). Moreover, the Relative Strength Index (RSI) is hovering around 35 and hints at lingering weak demand. Adding to this, the Moving Average Convergence Divergence (MACD) indicator sits below zero with a negative reading, suggesting downside momentum still dominates.
The commodity is now looking to extend the fall further below the very important 200-day SMA and test the ascending channel support, currently near $4,311.11. A sustained drop through this floor would open the way for a deeper retracement within the broader corrective phase. On the top side, any meaningful recovery might confront initial resistance near the $4,480 horizontal zone. A break higher would expose the upper boundary of the descending channel and the 50-day SMA confluence near $4,625-$4,630 as a more formidable supply zone.
(The technical analysis of this story was written with the help of an AI tool.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.