Gold Price Forecast: XAU/USD downside is back in play amid risks to US-Iran ceasefire
- Gold rebounds after briefly testing $4,650 early Monday, following failed US-Iran peace talks.
- The US Dollar rejoices safe haven flows amid increased risks to the US-Iran two-week ceasefire and energy flows.
- Gold remains vulnerable as the daily RSI flips bearish amid an impending Bear Cross.
Gold is re-attempting $4,700 early Monday, looking to fill up a $60 bearish opening gap, as markets brace for a re-escalation in the Middle East conflict.
Gold bounces, but not out of the woods yet
Despite the latest uptick, Gold eyes more pain as the US Dollar (USD) surges through the roof in Asia on Monday. A flight to safety remains a key theme, boosting the latter’s appeal as a safe-haven asset and the world’s reserve currency.
Markets remain increasingly concerned about the durability of the already frail ceasefire agreement between the United States (US) and Iran after the failed peace talks over the weekend in Pakistan.
The breakdown resulted in US President Donald Trump threatening blockades in the Strait of Hormuz, while reiterating his threats to attack the Iranian civilian energy infrastructure.
Additionally, Trump and his advisers are reportedly weighing limited military strikes in Iran in the face of the fallout, per the Wall Street Journal (WSJ).
The US Central Command (CENTCOM) announced that the “Forces will start blockade of all maritime traffic entering and exiting Iranian ports on Monday, 10 AM ET” (14:00 GMT).
In response, Iran’s Islamic Revolutionary Guard (IRGC) warned that any miscalculated move will trap the enemy in the deadly whirlpools” in the key waterway”.
“Approaching military vessels to the Strait of Hormuz is considered a violation of the ceasefire and will be dealt with harshly and decisively,” the IRGC warned further.
Meanwhile, the USD also draws support from hawkish expectations around the US Federal Reserve’s (Fed) interest rate outlook, which
The potential for US naval action around the Strait raises the risk of further disruption to global Oil supply, which could bolster higher inflation expectations and revive bets for a Fed rate hike this year.
This narrative underpins the USD, while non-yielding assets such as Gold tend to suffer in a high-interest-rate environment.
In the day ahead, the Mideast headlines will continue to drive the broader market sentiment, impacting the Greenback and thus, Gold price.
A lack of top-tier US economic data also puts the market attention back on the US-Iran ceasefire and the likely resumption of the US military action in Iran.
Gold price technical analysis: Daily chart
XAU/USD is holding a bearish bias as the 21-day simple moving average (SMA) near $4,674 has pierced through the 100-day SMA around $4,687 from above, with a Bear Cross confirmation awaited on a daily closing basis. The 14-day Relative Strength Index (RSI) around 47 stays below the midline, hinting at renewed downside.
On the topside, initial resistance is aligned with the 50-day SMA at roughly $4,899, where a daily close higher would open the door for a more decisive recovery phase. On the downside, immediate support is seen first at the 21-day SMA around $4,674, followed closely by the 100-day SMA near $4,687 reinforcing the same demand area, while a deeper pullback towards the 200-day SMA at about $4,186 would be expected to attract more strategic dip-buying interest if tested.
(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.
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.
