Gold (XAU/USD) saw renewed interest from dip-buyers during the Asian trading session on Thursday, recouping much of the losses incurred from the previous day’s drop after reaching a near four-week high. Investor sentiment remains bullish as optimism for a diplomatic resolution to tensions with Iran continues to grow, which is perceived to diminish the US Dollar’s (USD) status as the preferred reserve currency while providing support for gold prices.
US President Donald Trump has suggested that the conflict with Iran may soon be resolved, echoing sentiments from the White House regarding ongoing discussions to end the hostilities. Reports indicate that a second round of peace talks between the US and Iran could occur shortly, which has contributed to a positive market atmosphere and diluted the demand for safe-haven assets like gold. Furthermore, diminishing expectations for an interest rate hike from the US Federal Reserve (Fed) have added to the bearish outlook for the USD, further encouraging the appeal of non-yielding commodities such as gold.
The prospect of ongoing diplomatic negotiations has kept crude oil prices steady, remaining close to a three-week low set earlier this week. Additionally, the US Producer Price Index (PPI) numbers released recently have alleviated fears regarding inflation linked to rising energy prices, which in turn has lessened hawkish expectations towards the Fed. Data from the CME Group’s FedWatch Tool suggests that any rate easing by the Federal Reserve might be pushed back to late 2026, resulting in downward pressure on the USD Index, which has fallen to its lowest level since late February, thereby enhancing the case for further gold price increases.
In the backdrop of these developments, the US has fully enacted a naval blockade of Iranian ports following recent talks, which now seem stalled. Iranian military leaders have warned of potential trade disruptions in the Gulf unless the blockade is lifted. Moreover, Iran has set conditions for continuing negotiations with the US, demanding an end to Israeli operations in Lebanon. Unfortunately, Israeli Prime Minister Benjamin Netanyahu has signalled no commitment to a ceasefire, which sustains the prevailing geopolitical risks that could limit the extent of USD losses while capping gold gains.
XAU/USD Technical Analysis
The XAU/USD pair remains just below the critical resistance marked by the 200-period Simple Moving Average (SMA) around $4,831.22. This level is currently constraining a potential recovery. The Moving Average Convergence Divergence (MACD) indicator has shifted to a positive bias, and the Relative Strength Index (RSI) hovers near 60, indicating a solid but not overextended bullish momentum.
To justify further upward movement towards $4,916.20 — aligning with the 61.8% Fibonacci retracement of the previous downward trend — there needs to be consistent strength and acceptance above the 200-SMA barrier. Breaking this level would pave the path towards the $5,136.01 mark and perhaps bring the highs around $5,416.01 into play.
Conversely, initial support is positioned at the 50% retracement level of $4,761.81. Should bearish momentum increase, further additional support could be found at the 38.2% Fibonacci level near $4,607.41, and the 23.6% Fibonacci retracement around $4,416.39. A breach of this support could signal a bearish reversal.
Gold FAQs
What is the role of gold in the economy?
Gold has historically acted as a crucial asset, valued for its stability as a store of wealth and medium of exchange. Beyond its aesthetic appeal used in jewelry, gold is regarded as a safe haven during economic turmoil and inflationary pressures, unaffected by specific government guarantees.
Who holds the most gold?
Central banks are the largest holders of gold. In efforts to bolster their economies and currencies during uncertain times, they diversify reserves with gold. In 2022, central banks added a record 1,136 tonnes of gold, valued at approximately $70 billion, signalling a significant trend amongst countries like China, India, and Turkey to increase their reserves.
How does gold correlate with the USD?
Gold typically moves inversely to the value of the US Dollar and US Treasuries. As a preferred asset during uncertain times, gold prices often rise when the dollar weakens, allowing investors to hedge against losses from riskier asset classes.
What drives gold prices?
Several factors can fluctuate gold prices, including geopolitical unrest and economic downturns, which heighten its appeal as a safe haven. As a non-yielding asset, gold tends to thrive when interest rates are low. Importantly, since gold is traded in USD, its price is often inversely related to the performance of the dollar; a strong dollar can suppress gold prices while a weak dollar encourages increases.
