Gold is struggling to extend the previous week’s uptrend, holding close to the $4,700 level early Monday, as a new week begins, but fresh US-Iran tensions arise and erode investors’ confidence once again.
Gold: Still buy-the-dip trade?
With no end in sight to the Iran war, Oil prices see a fresh leg higher, reviving inflation fears and boosting the US Dollar’s (USD) safe-haven appeal while boding ill for the USD-denominated Gold.
Rekindling of inflation risks bolsters expectations that the US Federal Reserve (Fed) could hold interest rates higher for longer or could even opt for a rate hike by the turn of this year. This narrative also serves positive for the Greenback at the expense of non-yielding assets such as Gold.
Over the weekend, Iran passed on the counter-proposal to Washington through Pakistani mediators. However, US President Donald Trump took no time to reject the Iranian response to the US peace proposal, citing it as “totally unacceptable”.
The US had presented a peace proposal a week ago, while the Iranian counter-proposal on Sunday suggested a shorter moratorium, the export of part of the HEU stockpile and the dilution of the rest, and refusal to accept the dismantling of facilities.
The US rejection of the Iranian counter-proposal puts strain on an already fragile ceasefire, as the United Arab Emirates (UAE) and Kuwait reported drone incursions in their airspace on Sunday, and a drone attack started a small fire on a ship on the coast of Qatar.
The unresolved standoff hangs over the high-stakes summit between Trump and Chinese President Xi Jinping this week (May 13 to May 15).
Furthermore, the blockbuster April Nonfarm Payrolls report from the United States (US) boosts hawkish Fed expectations, adding to the weight on the bullion. Data on Friday showed that the headline NFP increased 115,000 in April, above expectations for a 62,000 gain.
Meanwhile, hotter-than-expected Chinese inflation data fail to inspire Gold bulls amid muted Indian demand and steady Chinese premiums for the yellow metal last week.
Looking ahead, Gold will likely see limited upside as traders would move to the sidelines and refrain from taking fresh bets ahead of Tuesday’s US Consumer Price Index (CPI) inflation data.
Also, markets keep a close eye on the developments in the Mideast and on the Oil price action for fresh trading impetus in Gold price.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,686.36, holding a capped tone as it sits under a dense band of daily moving averages. Price is marginally below the 21-day simple moving average (SMA) at $4,694.99 and remains clearly under the 50-day SMA at $4,768.70 and the 100-day SMA at $4,781.58, which collectively suggest that recent rebounds are still unfolding within a broader corrective phase. The Relative Strength Index (RSI) around 50 points to neutral momentum, hinting at consolidation rather than a clean bullish reversal while these overhead levels continue to weigh.
On the topside, initial resistance is seen at the 21-day SMA near $4,695, with further barriers at the 50-day SMA around $4,769 and the 100-day SMA near $4,782, where a break would be needed to ease the current downside bias and open room for a more durable recovery. On the downside, the broken descending trend-line area, referenced by the prior break price around $4,556, acts as the first notable support ahead of the more substantial 200-day SMA near $4,321, where buyers would be expected to defend the broader bullish structure if a deeper pullback unfolds.
(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.
