Gold price (XAU/USD) declines to near $4,070 during the early Asian session on Wednesday. The precious metal fluctuates as traders weigh the Federal Reserve’s (Fed) interest-rate path amid uncertainty in the Middle East.
The Guardian reported on Tuesday that US Secretary of State Marco Rubio said there has been progress made in discussions with Iran and Oman on getting more ships through the Strait of Hormuz, but no final agreement has been reached. Meanwhile, US Treasury Secretary Scott Bessent said Washington could reach a deal with Tehran by tomorrow to reopen the critical waterway.
Cooling US-Iran tensions could ease energy-driven inflation fears and prompt traders to pare bets on further Fed interest-rate increases. This, in turn, could provide some support to the non-yielding Gold. Markets have priced in nearly a 60% chance that the US central bank will hike rates at the September meeting, according to the CME FedWatch tool.
Nonetheless, the uncertainty in the Middle East remains high as there are no direct talks between the US and Iran. Qatar’s Foreign Ministry stated that efforts to resolve the US-Iran conflict are “in very progressive stages,” adding that drafts of a potential agreement are “being circulated” but that there are no direct talks between the two sides. Traders will closely monitor the developments surrounding US-Iran talks.
Markets might turn cautious later this week ahead of the crucial US employment data, which is due on Friday. This report could offer further clues on the Fed’s monetary path.
“Anything that shows economic weakness is probably accretive to gold, mainly because it reduces the likelihood or the need for the central bank to act on interest rates,” said Bart Melek, global head of commodity strategy at TD Securities.
Gold steadies as geopolitical relief meets US rate uncertainty
ING strategist Ewa Manthey notes that gold’s recent recovery remains constrained by conflicting drivers, with the metal “likely to remain caught between improving geopolitical sentiment and ongoing uncertainty over US interest rates.” While easing Middle East tensions and softer inflation pressures have underpinned the latest bounce, Manthey cautions that expectations of US rates staying higher for longer continue to cap the scope for further gains in bullion.
Technical Analysis: Gold keeps a bearish vibe under the 100-day SMA
In the daily chart, XAU/USD keeps a bearish near-term tone as it sits below the 100-day Moving Average (MA). The Relative Strength Index (14) at 47.71 remains neutral, hinting at consolidative momentum rather than a clear directional push.
On the topside, initial resistance emerges at the Bollinger upper band near $4,140, with a stronger cap at the 100-day MA around $4,405, where sellers are likely to defend the broader downtrend. On the downside, the first support is aligned with the Bollinger middle band at $4,060, followed by the $4,000 psychological level. The next contention emerges at the lower band around $3,980, where a break would open the door to a more pronounced bearish extension.
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.
