Gold (XAU/USD) price retreats as the week begins, down some 0.20% on Monday as Crude Oil prices trend up, increasing fears of an inflation spiral that might deter central banks, including the Federal Reserve (Fed), from lowering borrowing costs. The XAU/USD pair trades at $4,734, after retreating from a daily peak of $4,750.
Bullion eases as Oil gains and Fed hold bets keep buyers wary
Recently, bullion prices had trimmed some of their earlier losses as US President Donald Trump said that Vice-President JD Vance has done a good job on Iran, and had been called by Iran, which wants to make a deal “very badly.”
Trump added that Iran “did not agree to not having a nuclear weapon,” adding that “We can’t let a country blackmail or extort the world,” and that “we’ll get nuclear material back.”
Aside from this, the Greenback trimmed some of its earlier gains after Trump’s comments, as the US Dollar Index (DXY), which measures the performance of a basket of six currencies against the US Dollar, turned negative, losing 0.09% in the day at 98.61.
In the meantime, the US established a blockade in the Strait of Hormuz, which began at 10:00 AM EDT on Monday, aimed at blocking Iranian-flagged vessels and those from other countries leaving Iranian ports.
Existing Home Sales fell to a nine-month low of 3.98 million in March, down 3.6% MoM, but the data was largely ignored as traders waited for a resolution to the US-Iran conflict.
Fed expected to keep policy steady
Last week’s inflation report in the US wasn’t a surprise for anyone, according to San Francisco Fed President Mary Daly. She said that the chances for holding rates are higher than a hike, though noted that “if inflation stays elevated for longer than anticipated, we would hold steady until we know we are getting the inflation job done.”
March’s Consumer Price Index (CPI) in the US climbed by 3.3% YoY, almost 1% up from February’s data. Still, fears of a prolonged conflict in the Middle East prompted investors to trim dovish bets on the Fed, as they expect the central bank to stand pat, according to data from Prime Market Terminal (PMT).
Fed interest rate probabilities
Therefore, US Treasury yields are expected to remain higher, a headwind for Gold prices. At the time of writing, the US 10-year T-note is down 1.5 basis points to 4.30%.
Ahead, the US economic docket will feature the ADP Employment Change 4-week average, along with speeches by Fed officials and the March Producer Price Index (PPI), expected to rise 4.6% YoY.
XAU/USD technical outlook: Gold bounces from 20- and 100-day SMA confluence support zone
Gold price is upward biased from a medium-term perspective, as it rebounds from daily lows of $4,639, below the confluence of the 100- and 20-day Simple Moving Averages (SMAs), each at $4,658-$4,668.
In the short term, the Relative Strength Index (RSI) shifted bearish, but if the index fails to clear the 44.76 trough, bullion could be set for higher prices.
If XAU/USD clears the key psychological $4,750 resistance, it could open the way for higher prices, with the next resistance at $4,800. Above here, further gains lie in the next area of interest: the April 8 peak at $4,857, ahead of the 50-day SMA at $4,897.
Conversely, if Gold retreats below $4,700, look for a challenge of the confluence of the 20- and 100-day SMAs at around $4,668/58, followed by the $4,600 figure.
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.