Gold sees more pain as Iran tensions revive inflation fears
- Gold price weakens to $4,056 as revived global inflation fears force traders to reconsider Fed interest rate expectations.
- The FOMC minutes show that several policymakers see the need of further policy tightening.
- Investors seek fresh cues regarding how much the US inflation could accelerate further on renewed MidEast hostilities
Gold price (XAU/USD) reflects signs of softness on Thursday, trading 0.5% lower at around $4,056 during the Asian trading session. The precious metal is under pressure as Middle East hostilities have revived fears of high global inflation, a scenario that discourages major central banks from easing monetary conditions. This framework bodes well for interest-bearing assets, but diminishes the appeal of non-yielding assets, such as Gold.
Traders seem to have started pricing in fears of high inflation, as the CME FedWatch tool shows that the odds of the Federal Reserve (Fed) leave interest rates unchanged this year have eased to 14.9% from 19.4% recorded on Tuesday.
On Wednesday, the United States (US) Central Command said that it launched fresh strikes on Iran, which were aimed to keep the Strait of Hormuz, a critical chokepoint to almost 20% of global energy supply, open for transit. This came after US President Donald Trump announced that the memorandum of understanding (MoU) signed with Iran, aimed at ending the Middle East war, is over.
From this point onward, market participants need to pay close attention to leading US economic indicators that would reflect how much already high inflation could accelerate further to get fresh cues regarding the interest rate outlook.
The Federal Open Market Committee (FOMC) Minutes of the June policy meeting, released on Wednesday, showed that policymakers continue to see “inflation as the dominant risk”, and several officials still believe further tightening could become necessary.
Gold technical analysis
XAU/USD trades lower at around $4,056, keeping a bearish near-term bias as spot holds under the 20-day exponential moving average (EMA) at $4,149.09. The metal continues to trade below this key dynamic barrier, suggesting upside attempts remain capped, while the Relative Strength Index (RSI) at 40.11 stays in mildly negative territory and hints at persistent, though not extreme, selling pressure.
On the topside, immediate resistance is defined by the 20-day EMA at $4,149.09, and a sustained break above this level would be needed to ease the current downside tone. The precious metal could advance towards $4,200 if it manages to sustain above the moving average. Looking down, the yellow metal could slide towards $3,800 if it breaks below the June 30 low of $3,941.76.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
