Gold bulls seem hesitant as Iran tensions fuel inflation fears and hawkish Fed bets
- Gold attracts some buyers as the USD bulls turn cautious ahead of the FOMC meeting Minutes.
- Renewed US-Iran hostilities could support the safe-haven Greenback amid hawkish Fed expectations.
- Reviving inflation fears push US bond yields higher and should cap the non-yielding precious metal.
Gold (XAU/USD) maintains its bid tone heading into the European session on Wednesday and, for now, seems to have snapped a two-day losing streak to sub-$4,100 levels, or the weekly trough touched the previous day. The US Dollar (USD) turns lower as bulls opt to lighten their bets ahead of the release of the June FOMC meeting Minutes, which, in turn, is seen acting as a tailwind for the bullion. The fundamental backdrop, however, warrants caution before confirming that the pullback from levels just above the $4,200 mark, or a two-week high set on Monday, has run its course.
The US military launched a new wave of strikes against Iran on Tuesday following reports of attacks on three oil tankers in the Strait of Hormuz, jeopardizing the already fragile ceasefire. Traders were quick to price in the geopolitical risk premium amid concerns about a further escalation of tensions, which might continue to benefit the Greenback's reserve currency status and cap the Gold price. The US also moved to withdraw a key concession that allowed Iran to sell oil on international markets, triggering a sharp rally in Crude Oil prices on Tuesday. The latest developments revive energy-driven inflationary fears and reaffirm the US Federal Reserve's (Fed) "higher for longer" policy stance.
According to the CME Group's FedWatch Tool, traders are currently pricing in over an 80% chance that the US central bank will deliver at least one 25 basis points (bps) rate hike by the end of this year. Adding to this, expectations of a more hawkish tone in the Fed Minutes push US Treasury bond yields higher. In fact, the yield on the benchmark 10-year US government bond rose to 4.567%, and the policy-sensitive two-year Treasury yield climbed to 4.189% on Wednesday. This, in turn, favors the USD bulls and should contribute to keeping a lid on the non-yielding Gold. Hence, it will be prudent to wait for some follow-through buying before placing fresh bullish bets on the XAU/USD pair.
XAU/USD daily chart
Gold lacks bullish conviction; downside potential seems intact
From a technical perspective, the precious metal remains entrenched inside a downward-sloping channel and retains a bearish near-term bias below the 200-day Simple Moving Average (SMA). Meanwhile, the Moving Average Convergence Divergence (MACD) has turned positive, hinting at a short-term recovery attempt. However, the Relative Strength Index (RSI) at 44.33 stays below the midline, reinforcing a still-cautious tone rather than a sustained bullish reversal.
This, in turn, suggests that rallies are likely to face stiff resistance and remain capped by overhead supply near the channel’s upper boundary at $4,164.35, despite improving momentum. A convincing breakout through the said barrier and a subsequent move beyond the 200-day SMA at $4,491.30, which marks a more significant barrier, would be needed to ease the broader bearish pressure.
On the downside, the first meaningful structural support aligns with the channel’s lower boundary around $3,713.85. Buyers may attempt to defend the broader trend floor if the current rebound fails and XAU/USD resumes its slide within the bearish channel.
(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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
