Gold climbs back closer to $4,700 amid weaker USD; upside potential seems limited
- Gold kicks off the new week on a weaker note, though it lacks follow-through and bounces off $4,600.
- Inflationary concerns bolster bets for higher interest rates globally and undermine the precious metal.
- The USD preserves its bullish bias and turns out to be another factor exerting pressure on the bullion.
Gold (XAU/USD) builds on its steady intraday ascent and climbs to the $4,700 neighborhood, or a fresh daily high during the first half of the European session on Monday. Bloomberg, citing Axios, reported that the US, Iran, and regional mediators are discussing terms for a possible 45-day ceasefire that could lead to an end of fighting. This, in turn, undermines the safe-haven US Dollar (USD), which assisted the commodity in attracting some dip-buyers in the vicinity of the $4,600 mark. However, prospects for higher interest rates globally cap the upside for the non-yielding yellow metal.
Investors now seem convinced that the war-driven surge in energy prices would revive inflationary pressures and force major central banks, including the US Federal Reserve (Fed), to adopt a more hawkish stance. In fact, Crude Oil prices advanced to a nearly four-week high on Monday in reaction to US President Donald Trump's threat to target Iran’s power plants and bridges if the Strait of Hormuz is not reopened by Tuesday. Adding to this, Tehran also outlined a new condition and said that the transit through the strategic waterway could resume if part of the revenue is allocated to compensate Iran for war-related damages.
Moreover, Ali Akbar Velayati, an advisor to Iran’s new Supreme Leader, Mojtaba Khamenei, warned that the resistance front could target the Bab el-Mandeb Strait in the Red Sea—another critical chokepoint. This raises the risk of a further disruption to global trade routes and remains supportive of elevated Crude Oil prices. Meanwhile, the upbeat US Nonfarm Payrolls (NFP) report released on Friday signaled a still resilient labor market and boosted speculation that the Fed will hold rates higher for longer to combat inflation. The outlook, in turn, benefits the USD, which contributes to the offered tone around the Gold price.
The intraday price action, however, makes it prudent to wait for acceptance below the $4,600 mark before confirming that the recent goodish rebound from the $4,100 mark, or a four-month low touched in March, has run out of steam. Traders now look forward to the release of the US ISM Services PMI for some impetus later during the North American session amid thin liquidity on the back of the Easter Monday Holiday in many global financial markets.
XAU/USD 4-hour chart
Gold could attract fresh sellers at higher levels amid bearish technical setup
From a technical perspective, the $4,600 mark coincides with the 38.2% Fibonacci retracement level of the March downfall and should act as a key pivotal point. The precious metal holds well below the 200-period Exponential Moving Average (EMA) on 4-hour chart, keeping the broader trend under downside pressure. The Moving Average Convergence Divergence (MACD) line has slipped below its signal, and both fluctuate just above the zero, with a negative histogram suggests building selling momentum after the recent failure to sustain gains above $4,750.
Meanwhile, the Relative Strength Index (RSI) at 52 keeps a neutral stance, but its pullback from overbought territory reinforces the idea of fading upside pressure rather than fresh buying interest. In the meantime, immediate resistance emerges around $4,758, where the 50.0% retracement coincides with the latest swing high zone, while a recovery above that level would target the 200-period EMA near $4,791 and then the $4,913 region at the 61.8% Fibo. retracement. Only a clear move back above the EMA cluster would neutralize the current bearish bias.
On the downside, initial support aligns near the 38.2% Fibo. retracement, with a break there exposing a deeper pullback to the 23.6% retracement around $4,411. A sustained drop below that region would open the way toward the psychological $4,300 area.
(The technical analysis of this story was written with the help of an AI tool.)
(This story was corrected on April 6 at 07:53 GMT to say that MACD and its signal both fluctuate just above the zero line, not under zero.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of 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.
