Gold Steady Amid US-Iran Tensions
On Monday, Gold (XAU/USD) managed to recover from a gap-down opening, with current trading around $4,732 after reaching an intraday low of approximately $4,632. However, the upward momentum remains weak due to escalating tensions between the United States and Iran, which are overshadowing market sentiment.
The positive outlook seen last week, spurred by a two-week ceasefire announcement, has all but faded after unsuccessful US-Iran discussions in Islamabad over the weekend. This has led to a heightened risk-off sentiment in the markets. In response to these developments, US President Donald Trump instituted a naval blockade of the Strait of Hormuz, applicable to all ships entering or exiting Iranian ports in the Arabian Gulf and Gulf of Oman, effective from 10:00 ET (14:00 GMT) on Monday.
In retaliation, Iran’s Islamic Revolutionary Guard Corps (IRGC) has warned that approaching any military vessels in the Strait of Hormuz would be regarded as a breach of the ceasefire and could lead to military consequences. Market participants remain cautious about potential escalations that could further disrupt global energy supplies. Consequently, crude oil prices have rebounded, with West Texas Intermediate (WTI) hovering around $97, reflecting a 7.5% uptick.
Rising oil prices are exacerbating concerns over inflation and fuel expectations that the Federal Reserve (Fed) may sustain higher interest rates for an extended period, or possibly increase them further if the geopolitical conflict lingers. This scenario provides support for the US Dollar (USD) and Treasury yields. Recent US inflation figures for March revealed an increase in energy costs, with the headline Consumer Price Index (CPI) rising 0.9% month-on-month, marking an increase from 0.3% in February; the annual CPI also rose to 3.3% from 2.4%.
Despite gold’s reputation as a hedge against inflation and a safe haven during uncertain times, it has struggled to attract significant buying interest since the onset of the war, primarily due to the rising interest rate landscape that elevates the opportunity costs associated with holding non-yielding assets.
Nonetheless, the broader long-term outlook for gold appears to be bolstered by continuous purchases from central banks, eroding trust in fiat currencies, increasing sovereign debt levels, and durable investment demand.
Looking ahead, the US economic calendar for the week appears light, with the Producer Price Index (PPI) for March scheduled for release on Tuesday. In addition, several Federal Reserve officials are set to speak throughout the week, which may provide further insights into the interest rate outlook.
Technical Analysis: XAU/USD Consolidates
From a technical standpoint, the daily chart reveals that XAU/USD is trading above the 100-day Simple Moving Average (SMA) at $4,687.11 and well above the 200-day SMA located near $4,185.66. However, it remains constrained under the 50-day SMA at $4,899.26, reflecting a neutral broader bias with a slight downside skew as prices fluctuate between these critical levels.
Momentum indicators show a lack of definitive direction; the Relative Strength Index (RSI) is hovering near 47.55, indicating a lack of buying conviction. Meanwhile, the Average Directional Index (ADX) stands around 27.94, suggesting merely moderate trend strength.
Should the price sustain a move above the 50-day SMA, it would signal improvement in bullish momentum, with the $5,000–$5,200 range becoming a significant resistance zone. Conversely, failing to maintain levels above the 100-day SMA may expose the $4,600–$4,500 support area, followed by potential testing of the 200-day SMA.
Gold FAQs
What role does gold play in economies?
Gold has historically served as a store of value and medium of exchange. Today, it is perceived as a safe-haven asset, crucial during economic upheavals, and an effective hedge against inflation and currency depreciation due to its independence from any issuer.
Who are the primary holders of gold?
Central banks are significant gold holders, diversifying their reserves to stabilise their currencies during turmoil. In 2022, central banks added 1,136 tonnes of gold, the highest annual purchase on record, predominantly from emerging markets like China, India, and Turkey.
How does gold relate to the US dollar?
Gold typically exhibits an inverse correlation with the US Dollar and Treasuries. A weakening dollar tends to boost gold prices, making it an appealing option for investors seeking stability during market fluctuations.
What factors drive gold prices?
Various factors influence gold prices, notably geopolitical tensions or fears of economic downturns, which often result in price increases due to its safe-haven status. Additionally, lower interest rates tend to increase gold prices, while higher rates usually weigh down on them, particularly dependent on the US dollar’s movements.
