$4,100 in sight: Gold appears vulnerable on bumpy US-Iran talks
- Gold licks wounds early Monday, following a 1.5% weekly loss and eyeing more declines.
- The US Dollar stands tall on strained US-Iran peace talks after Trump’s threats, Strait of Hormuz closure.
- Gold looks to attack $4,100 amid a bearish technical setup on the daily chart.
Gold is languishing within striking distance of the weekly low near $4,120, reached last week, as sellers retain control at the start of a new week on Monday.
Gold is set for more pain
Gold is gathering pace for the next leg lower, following a three-day losing streak, as shaky peace talks between the United States (US) and Iran and the Iranian closure of the Strait of Hormuz cast clouds on the durability of the memorandum of understanding (MoU) signed by both sides last Wednesday.
The MoU is designed to lift the blockade on the Strait of Hormuz, leading to 60 days of talks on Iran’s civil nuclear programme.
However, on Saturday, Iran closed the Strait of Hormuz amid continued Israeli attacks in Lebanon, ahead of the scheduled peace talks between both sides in Switzerland on Sunday.
Following the Iranian closure of the Strait and the Israel-Lebanon hostilities, US President Donald Trump threatened to bomb Iran and kidnap the negotiating team unless the Strait of Hormuz reopened.
In protest at a stream of threats issued by Trump on social media, Iranian negotiators left high-stakes talks with the US, leaving investors wary about the resumption of these talks.
Traders, therefore, run for cover in the safe-haven US Dollar, as Oil prices rebound firmly on strained negotiations.
Meanwhile, Gold continues to face headwinds from the US Federal Reserve’s (Fed) hawkish interest rate outlook, which continues to support the USD uptrend.
Last Wednesday, the Fed held the benchmark policy rates between 3.5%-3.75%, as widely expected. But the updated Summary of Economic Projections (SEP), the so-called dot plot chart, showed a major hawkish shift, with nine Fed officials forecasting at least one interest rate increase this year.
Next of note, for Gold traders, remains the developments around the US-Iran peace talks, with mediators Qatar and Pakistan looking to continue negotiations in the background.
According to the Guardian, “before leaving the face-to-face talks in Bürgenstock, Iran reached a draft agreement over how the US will issue a waiver lifting sanctions on Iranian oil exports, one of the key preconditions before Iran will open talks on its nuclear file.”
Additionally, with US traders returning from an extended weekend break, Gold could be subject to intense volatility.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,154.73. The metal holds well below the 21-day, 50-day, 100-day and 200-day simple moving averages (SMAs), keeping the near-term bias bearish as rallies continue to be capped by layered trend resistance overhead. The Relative Strength Index (14) at roughly 35 stays in weak territory, suggesting downside momentum is holding up following the recent slide.
On the topside, initial resistance is seen at the 21-day SMA near $4,347, followed by the 200-day SMA around $4,469 and the 50-day SMA close to $4,529, while a more substantial barrier emerges at the 100-day SMA near $4,714. On the downside, with no major moving-average support below spot, traders will likely look to recent price lows and round numbers as interim floors, and only a daily close back above the clustered SMAs would start to alleviate the current bearish pressure.
(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.
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Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
