Gold (XAU/USD) fell sharply to near the $4,100 mark but managed to reverse its direction as markets grew hopeful for a truce in the Middle East. However, contradicting headlines regarding the United States (US)-Iran war, the continuation of strikes in the region and the US military buildup, suggested otherwise, making it difficult for XAU/USD to preserve its recovery momentum. The focus now shifts to the upcoming March Nonfarm Payrolls (NFP) data from the US, along with further geopolitical developments.
Gold buyers hesitate as Middle East uncertainty grows
Gold experienced intense volatility at the beginning of the week as markets reacted to headlines surrounding the crisis in the Middle East. The precious metal came under heavy selling pressure early Monday, with Oil prices shooting higher and feeding into global inflation fears, after US President Donald Trump’s threat over the weekend to “obliterate” Iran’s power plants if they refused to open the Strait of Hormuz within 48 hours. In response, Iran warned that it would retaliate and target all US-linked energy infrastructure in the Middle East.
After falling to its lowest level since late November near $4,100, XAU/USD made a sharp U-turn in the second half of Monday and erased a majority of its daily losses to close near $4,400. US President Trump announced that they postponed any military strikes against Iran’s power plants for five days following “good and productive conversations,” triggering a sharp decline in Oil prices and a heavy US Dollar (USD) selloff.
Heightened optimism about a de-escalation of the conflict allowed risk flows to return to markets and helped Gold extend its recovery. Israeli Channel 12 claimed on Tuesday that a one-month ceasefire could be announced, during which sides would negotiate the terms of a 15-point proposal sent to Iran through intermediaries.
Nevertheless, the market mood soured in the second half of the week as the Iranian side continuously refuted any claims that they were in negotiations with the US. Iran also reportedly rejected the US’s 15-point proposal. Meanwhile, White House Press Secretary Karoline Leavitt refused to say whether the US was considering a ground operation during a press briefing late Wednesday but noted that a formal authorization from Congress would not be needed if the US decided to execute such a plan. After climbing above $4,600 early Wednesday, Gold retraced its daily rally in American trading hours and came under renewed bearish pressure on Thursday.
In a post published on Truth Social on Thursday, Trump said that Iran was “begging” them to make a deal. Later in the day, the President announced that, as per the Iranian government’s request, they will postpone the plan to attack Iran’s energy infrastructure for another 10 days to April 6 and reiterated that talks between Washington and Tehran were going “very well.” Investors largely ignored this development and Gold fell nearly 3% on the day.
In the meantime, rising US Treasury bond yields further weighed on Gold in the second half of the week. Federal Reserve (Fed) Governor Michael Barr said on Thursday that a price shock caused by the Middle East conflict could shift inflation expectations and lead to more inflation persistence. Similarly, Fed Vice Chair of Supervision Philip Jefferson noted that geopolitical tensions posed upside risks to inflation forecasts. The benchmark 10-year US T-bond yield rose nearly 2% on Thursday and advanced to its highest level since July, above 4.45% on Friday.
Heading into the weekend, Gold corrected higher, supported possibly by short-covering.
Gold investors await clarity on the US-Iran war
The US economic calendar will feature the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) report for March on Wednesday. Investors will pay close attention to the Prices Paid Index component of the survey. A significant increase in this data could feed into inflation fears and support the USD with the immediate reaction, causing XAU/USD to push lower. Assessing the S&P Global’s flash Manufacturing PMI report, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said that findings pointed to an “unwelcome combination of slower growth and rising inflation following the outbreak of war in the Middle East.”
“The Fed will therefore need to juggle these intensifying upside risks to inflation against the growing risk of the economy losing growth momentum, with much depending on the duration of the war and its impact on energy prices and global supply chains,” Williamson added.
On Friday, the US Bureau of Labor Statistics will publish the March employment report, which will feature the Unemployment Rate, Nonfarm Payrolls (NFP) and wage inflation figures. However, the market reaction to the US labor market data could be delayed untill Monday’s opening because financial markets will be closed in observance of the Good Friday holiday.
According to the CME FedWatch Tool, markets are no longer pricing in a rate cut in 2026 and see about a 37% probability of a rate hike by year-end, compared with the 2-3 rate cuts projected before the US-Iran war started. This positioning suggests that a disappointing NFP print could ease expectations for policy tightening and help Gold rebound once markets return to action after the long weekend. On the other hand, a reading above 50K in the headline NFP figure could be seen as a ‘good enough’ print for the Fed to remain focused on inflation. In this scenario, the USD could hold its ground and weigh on XAU/USD.
Still, news coming out of the Middle East will remain the primary driver of Gold’s action in the short term. In case the US launches a ground invasion and looks to take control of the Kharg Island, markets could see this as a sign of a further escalation of the conflict and trigger another leg higher in Oil prices. In this case, Gold could turn south, weighed down by increasing expectations that central banks would have to keep interest rates higher for longer. However, if a ‘boots on the ground’ action leads to Iran taking a step back and turning to diplomacy, Gold could gather bullish momentum.
In this current environment, it’s not easy to foresee what could come next in the Middle East crisis. Nonetheless, the inverse correlation with Oil prices and Gold could remain intact in the near term due to inflation risks. However, if a ceasefire is officially confirmed by both sides, that would be the most bullish scenario for Gold and open the door for a decisive rally.
Gold technical analysis confirms the bearish stance
Gold broke below the 100-day Simple Moving Average (SMA) on Monday and failed to reclaim this dynamic level at the end of a two-day recovery on Wednesday. Additionally, the Relative Strength Index (RSI) indicator on the daily chart stays slightly above 30, suggesting that the bearish pressure remains strong, with further room before XAU/USD turns oversold.
On the downside, $4,240 (Fibonacci 78.6% retracement of the November-February uptrend) aligns as an interim support level ahead of the $4,120-$4,100 region, where the March 23 low meets the 200-day SMA. In case Gold falls below this support and confirms it as resistance, $4,000 (psychological level) could be seen as the next bearish target ahead of $3,900 (beginning point of the uptrend).
Looking north, the first resistance level could be spotted at $4,500 (Fibonacci 61.8% retracement) before $4,625 (100-day SMA). If XAU/USD climbs above the latter and starts using it as support, technical sellers could move to the sidelines. In this scenario, $4,680 (Fibonacci 50% retracement) could be seen as the next hurdle before $4,860 (Fibonacci 38.2% retracement).
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.
