Gold is back in the red near $4,000 early Friday, snapping a brief rebound seen on Wednesday, and eyes a fourth straight weekly loss.
Gold gives in to unabated USD demand
Gold is struggling to resist above the $4,000 mark as the downside resumes amid the revival of the haven demand for the US Dollar (USD).
Risk aversion remains at full steam in Asia, tracking the Wall Street sell-off overnight, where investors bore the brunt of the Apple-led Magnificent Seven titans announcing price hikes for their products, citing rising costs.
Further, a likely delay in the OpenAI Initial Public Offering (IPO) and renewed tensions erupting in the Strait of Hormuz are weighing on investors’ sentiment, offering a fresh lift to the Greenback.
A cargo ship was damaged by an unknown projectile off Oman’s coast in Hormuz. A White House official said that the US was looking into which party was responsible for the strike, including whether it was an action ordered by high levels of Iran’s Islamic Revolutionary Guard Corps (IRGC) or a rogue decision by lower-level personnel.
On Thursday, Gold received a brief reprieve and staged a tepid bounce from near seven-month lows of $3,959 after traders cashed in on their short positions after the US Federal Reserve’s (Fed) preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index, came in slightly lower than expected in May.
Markets pared back bets for at least two interest rate hikes this year. That fuelled a broad US Dollar pullback and allowed Gold to briefly rebound.
Looking ahead, Gold remains vulnerable amid bearish technicals and uncertainty over a safe transit via the Strait of Hormuz. Looming concerns over the durability of the US-Iran peace agreement also keep Gold buyers on edge.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,005.08, maintaining a bearish near-term bias as spot remains decisively below the 21-day, 50-day, 100-day and 200-day simple moving averages, which all act as overhead supply. The 21-day SMA (4,259.23) is the nearest cap, while the 50-day and 200-day SMAs clustered around $4,470 reinforce a broader downside tone, and the longer-term 100-day SMA at $4,682.60 adds to the heavy structure above price. The Relative Strength Index (14) at 31.72 hovers just above oversold territory, hinting at stretched downside momentum but not yet signaling a confirmed recovery.
Adding credence to the bearish potential, sellers need the 50-day SMA to yield a daily closing below the 200-day SMA, which, if confirmed on Friday, would validate a Death Cross.
On the topside, initial resistance emerges at the 21-day SMA around $4,259, followed by a denser barrier at the 50-day SMA near $4,467 and the 200-day SMA at $4,476, with the 100-day SMA further up at about $4,683 likely limiting any stronger rebound. With no nearby technical supports defined in this dataset below the current price, XAU/USD would need to reclaim the 21-day SMA first to ease immediate pressure, while sustained trading beneath this level keeps the metal vulnerable to further declines despite the RSI’s approach to oversold conditions.
(The technical analysis of this story was written with the help of an AI tool.)
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.
