Gold (XAU/USD) recovers slightly from a nearly two-week low, touched during the Asian session on Tuesday, and climbs back above the $4,000 psychological mark, though the upside potential seems limited. The US Dollar (USD) pauses following a strong two-day rally as bulls turn cautious ahead of the latest US consumer inflation figures and Federal Reserve (Fed) Chair Kevin Warsh’s testimony. This, in turn, is seen as a key factor offering some support to the bullion. However, escalating US-Iran tensions, along with firming Fed rate-hike expectations, back the case for a further near-term USD appreciation and should cap the yellow metal.
The US Consumer Price Index (CPI) report will be published later today and is expected to show a fall in the headline number amid a significant decline in gasoline prices during June. Meanwhile, the focus will be on the core CPI figures, which act as a primary gauge to track the underlying inflation trend. Furthermore, Fed Chair Kevin Warsh’s inaugural semi-annual monetary policy testimony before the House Financial Services Committee will influence rate-hike bets. The outlook, in turn, will play a key role in influencing the near-term USD price dynamics and providing some meaningful impetus to the non-yielding Gold.
In the meantime, the closure of the Strait of Hormuz and escalating US-Iran tensions lift Crude Oil prices to a nearly one-month high, reigniting inflation fears and raising prospects of higher-for-longer US interest rates. The US military launched a third straight night of strikes against Iran on Monday after US President Donald Trump reimposed a naval blockade of Iranian ports. In response, Iran’s Islamic Revolutionary Guard Corps (IRGC) targeted US facilities in the region, while two UAE tankers were hit by Iranian cruise missiles in the strait. Traders were quick to price in geopolitical risk premiums, which favors the USD bulls.
The aforementioned fundamental backdrop suggests that the path of least resistance for the Gold price remains to the upside. Hence, any subsequent recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. The XAU/USD pair seems vulnerable to decline further toward retesting the year-to-date low, around the $3,943-$3,942 region, touched on June 30.
XAU/USD daily chart
Gold’s bearish technical setup backs the case for the emergence of fresh sellers
From a technical perspective, the precious metal stays well below the 200-day Simple Moving Average (SMA) and keeps the broader tone bearish within a descending channel. Meanwhile, the Moving Average Convergence Divergence (MACD) is marginally positive, hinting at fading downside momentum. However, the Relative Strength Index (RSI) near 39 remains below the neutral line and reinforces a still fragile recovery rather than a confirmed bullish turn.
Hence, any subsequent move up is likely to be sold into and remain capped near the $4,100 mark. A sustained strength above could trigger a short-covering rally and lift the Gold price to the channel resistance, around $4,221. Some follow-through buying should expose the 200-day SMA pivotal resistance around $4,495.01, which, if cleared, would negate the bearish bias. On the downside, key support sits around $3,761.01 at the parallel channel boundary, and a decisive move back toward that zone would reopen the path for a deeper slide.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
