Gold price tumbles below $4,250 as Trump vows response to helicopter strike
- Trump vows response after Iran downs US helicopter near Hormuz.
- VIX jumps as escalation risk overshadows nuclear-talk progress.
- Hot US CPI risk keeps Fed tightening pressure on Gold.
Gold (XAU/USD) price plunges nearly 2% on Tuesday as tensions in the Middle East escalate afterUS President Donald Trump vowed a response to Iran's downing of a US helicopter near the Strait of Hormuz. At the time of writing, XAU/USD trades below $4,250, down 1.93% on the day.
XAU/USD tumbles as retaliation fears overpower lower yields
Market mood turned off, driven by a jump in the Volatility Index (VIX)—used by investors as insurance against stock market crashes—which is up 15% in the day, amid speculation for a possible escalation as Trump said that the “US must respond to an attack on a helicopter on the Strait of Hormuz.”
A New York Times article reported that the US and Iran are polishing four issues regarding Tehran’s nuclear enrichment program, which opens the door for a ceasefire agreement.
Earlier, Automatic Data Processing (ADP) released its 4-week moving average, which showed that hiring in private companies slowed from 35.75K to 29K. Nevertheless, traders are focused on the US inflation data release. May’s Consumer Price Index (CPI) is projected to rise from 3.8% to 4.2% YoY, while underlying CPI is foreseen to tick a tenth up from 2.8% to 2.9% YoY.
If the US CPI comes in aligned with estimates or higher, bullion prices would be pressured, as the Federal Reserve (Fed) might be forced to hold rates unchanged throughout 2026 or to raise borrowing costs to tame high inflation.
As of writing, the swaps market have priced in 23 basis points of Federal Reserve tightening by the end of 2026, according to Prime Terminal data.
Worth noting that Gold prices are falling in tandem with US Treasury yields. The US 10-year Treasury note yield falls 3.5 basis points to 4.532%, which is usually a tailwind for bullion.
The US Dollar Index (DXY), which measures the buck's performance against a basket of six currencies, edges down 0.09% to 99.91.
XAU/USD technical outlook: Gold mildly bearish below the 200-day SMA
Price action shows Gold’s downtrend may continue after XAU’s spot price plunged below the 200-day Simple Moving Average (SMA) at $4,440, a level investors use as an indicator of an asset's bullish or bearishness.
The Relative Strength Index (RSI) is accelerating its decline toward oversold territory, an indication that sellers have been gathering momentum. Therefore, the likely trend is for XAU to continue drifting lower.
If XAU/USD drops below the June 8 low of $4,268, the next support levels are $4,200 and then $4,098, the March 23 cycle low. Going further down, $4,000 becomes a significant support area.
On the upside, Gold must reclaim the 200-day SMA at $4,440. Breaking above this level could push prices toward $4,500, with possible resistance at $4,550. Above that, the next targets are the 50-day SMA at $4,619 and the 100-day SMA at $4,788.
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
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
