Gold bulls seem reluctant near $4,800 as inflation concerns counter retreating USD
- Gold attracts some dip-buyers following a bearish gap opening, though it lacks follow-through.
- Renewed US-Iran tensions provided a modest lift to the USD and weighed on the precious metal.
- Fading Fed rate hike bets keep a lid on any further USD appreciation and support the bullion.
Gold (XAU/USD) looks to build on its modest intraday recovery from the $4,737-$4,738 region or a one-week low touched earlier this Monday, and trades around the $4,800 mark heading into the European session. The US Dollar (USD) retreats from a one-week high and, for now, seems to have stalled its recovery move from a nearly two-month low set on Friday. This turns out to be a key factor lending some support to the commodity. However, an intraday rally in Crude Oil prices revived inflationary concerns and triggered a modest rise in US Treasury bond yields, which, in turn, might keep a lid on any meaningful upside for the non-yielding yellow metal.
The US-Iran standoff over the Strait of Hormuz tempers hopes for more peace talks before the current ceasefire ends on April 22. The US Navy intercepted and seized an Iranian-flagged cargo ship in the Gulf of Oman as part of its blockade. Iran viewed this as a breach of the ceasefire agreement and once again closed the strategic waterway after briefly opening it following a 10-day truce between Israel and the Lebanese group Hezbollah on Friday. Meanwhile, US President Donald Trump said that the naval blockade of Iranian ports would continue until a peace deal was agreed between the two countries.
The White House confirmed that US Vice President JD Vance would lead another delegation for a second round of talks on ending the war with Iran. Iranian state media has reported that officials will not participate while the US blockade remains in place. This dampens hopes for a peace agreement before the current ceasefire ends on April 22, which, in turn, triggers a fresh wave of the global risk-aversion trade and benefits the Greenback reserve currency status. The USD bulls, however, refrain from placing aggressive bets amid diminishing odds for an interest rate hike by the US Federal Reserve (Fed).
Instead, the CME Group's FedWatch Tool indicates that there is a roughly 40% chance of a Fed rate cut by the year-end, which keeps a lid on any meaningful USD appreciation and acts as a tailwind for the non-yielding Gold. The lack of follow-through buying, however, warrants some caution before positioning for the resumption of the precious metal's recent move up from the March swing low, around the $4,100 mark. There isn't any relevant market-moving economic data due for release from the US, leaving the USD and the commodity at the mercy of fresh developments surrounding the US-Iran saga.
XAU/USD 1-hour chart
Gold bulls await sustained strength and acceptance above 100-hour SMA/$4,800
The XAU/USD pair struggles to capitalize on the intraday recovery beyond the 100-hour Simple Moving Average (SMA) or find acceptance above the $4,800 mark. Moreover, the Relative Strength Index (RSI) around 44 hints at fading upside momentum, while the Moving Average Convergence Divergence (MACD) indicator stays in negative territory with the line below its signal and a negative histogram. This reinforces the idea that sellers retain control unless the Gold can push decisively back over the nearby average.
The said SMA at $4,805.60 is the first and only clear resistance, and a sustained break above this barrier would be needed to ease the current downside bias and open the door for a stronger recovery. As long as the XAU/USD pair trades under the said barrier, rallies are likely to face selling interest rather than signal a durable bullish reversal.
(The technical analysis of this story was written with the help of an AI tool.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
