Gold weakens below $5,300 as sustained USD buying counter Middle East tensions
- Gold meets with a fresh supply on Tuesday amid some follow-through USD buying.
- Rising geopolitical tensions in the Middle East could offer support to the commodity.
- The overnight failure to find acceptance above $5,400 also warrants caution for bulls.
Gold (XAU/USD) attracts some intraday selling on Tuesday and falls around $100 from the daily top, around the $5,380 area. The US Dollar (USD) climbs to a fresh high since January 20 and turns out to be a key factor exerting downward pressure on the commodity. However, concerns about a broader regional conflict in the Middle East continue to weigh on investors' sentiment and underpin demand for the traditional safe-haven bullion.
Rising geopolitical tensions continue to benefit the USD's status as the global reserve currency. Adding to this, reduced bets for aggressive easing by the Federal Reserve (Fed) further undermines the USD and contributes to the intraday selling around the the non-yielding Gold.
Meanwhile, Iran continues to fire missiles and drones at several Persian Gulf countries. A drone strike that hit the US Embassy in Saudi Arabia’s capital, Riyadh, marked a further escalation of the conflict. Moreover, Iran's Revolutionary Guard Corps (IRGC) Navy effectively declared the closure of the Strait of Hormuz and announced that no vessels are permitted to cross the critical maritime chokepoint.
US Secretary of State Marco Rubio stated that the US is preparing for a major uptick in attacks in Iran over the next 24 hours. This comes after US President Donald Trump said that a big wave is yet to come, underscoring the risk of a prolonged war. Furthermore, the State Department urged US citizens to depart immediately from countries in the Middle East due to serious safety risks.
This, in turn, could help limit deeper losses for the safe-haven Gold. In the absence of any relevant US macro data, the market focus will remain glued to developments surrounding the Iran war. The price action, however, warrants caution before positioning for a further appreciating move.
XAU/USD 1-hour chart
Gold could aim to test 100-hour SMA support near $5,240
Last week's breakout above the $5,200 horizontal barrier was seen as a key trigger for the XAU/USD bulls. Moreover, the Gold price holds well above the rising 100-period Simple Moving Average (SMA), keeping the broader uptrend intact despite the recent volatility.
Meanwhile, the Relative Strength Index (RSI) around 59 stays above the midline without reaching overbought conditions, reinforcing a modest upside skew rather than an extended rally. Furthermore, the Moving Average Convergence Divergence (MACD) line remains below the signal line and in positive territory, with the negative histogram shrinking, which suggests fading downside momentum within a still-upward structure.
Hence, a subsequent move up could face initial resistance at the recent high around $5,390, followed by a more significant barrier at $5,410, where prior rejection coincided with stretched intraday momentum. A sustained move above $5,410 would open the way toward the $5,450 region, while failure to clear $5,390 would keep the metal consolidating within the current intraday range.
On the flip side, immediate support emerges at $5,340, with a break exposing the next downside level at $5,320, ahead of stronger backing from the 100-period SMA near $5,230. A deeper pullback would target $5,300 as an intermediate floor.
(The technical analysis of this story was written with the help of an AI tool.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
