Gold (XAU/USD) is seen extending this week’s pullback from the monthly peak and drifting lower for the fourth straight day on Friday amid a sustained US Dollar (USD) buying interest. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs to its highest level since April 8 amid a combination of factors. Stalled US-Iran peace talks, amid major disagreements over Tehran’s nuclear program and the Strait of Hormuz, keep geopolitical risks in play. Moreover, rising bets for interest rate hikes by the US Federal Reserve (Fed) lend additional support to the USD and undermine demand for the non-yielding bullion.
US President Donald Trump said in an interview aired on Thursday night on Fox News that he would not be much more patient with Iran and urged Tehran to reach a deal. Meanwhile, a commercial vessel was reportedly seized by Iranian personnel off the United Arab Emirates (UAE), stoking concerns over the flow of energy supplies through the critical Strait of Hormuz. The latest developments remain supportive of elevated Crude Oil prices. Adding to this, hotter-than-expected US inflation figures released this week and Thursday’s US Retail Sales data lifted market expectations for a more hawkish US central bank and continue to act as a tailwind for the USD.
The headline US Consumer Price Index (CPI) rose to 3.8% YoY rate in April, and the core gauge climbed to 2.8%. Adding to this, the US Producer Price Index (PPI) surged 1.4% last month, pushing the annual rate to 6.0%. Moreover, US Retail Sales expanded for the third consecutive month in April, reflecting a still resilient consumer spending despite rising inflationary pressures and reaffirming hawkish Fed bets. According to the CME Group’s FedWatch Tool, traders are now pricing in a nearly 40% chance that the US central bank will raise borrowing costs by the year-end. This, in turn, favors the USD bulls and backs the case for further depreciation of the Gold price.
Meanwhile, US-China relations seem to have stabilized following a high-level summit between Trump and Chinese President Xi Jinping. Xi, however, warned that mishandling the Taiwan issue could trigger “clashes and even conflicts” between the US and China. Trump and Xi are set for a second day of talks in Beijing, and the incoming headlines might continue to infuse some volatility in the financial markets. Apart from this, developments surrounding the Middle East crisis would be looked upon for short-term trading opportunities. Nevertheless, the XAU/USD pair remains on track to register weekly losses, and the broader fundamental backdrop seems tilted in favor of bears.
XAU/USD 1-hour chart
Gold seems vulnerable as a breakdown below 50% retracement comes into play
From a technical perspective, the recent repeated failures near the $4,765-$4,770 horizontal resistance constituted the formation of a double-top pattern. A subsequent break below the $4,670 confluence – comprising the 200-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the upswing from the $4,500 neighborhood, or the monthly low – validates the negative outlook.
Adding to this, the Moving Average Convergence Divergence (MACD) indicator sits deep in negative territory with a reading of -5.58. Moreover, the Relative Strength Index (RSI) has slipped to 26.5, hinting at oversold conditions that could slow, but not yet reverse, the prevailing downside pressure.
On the downside, immediate support is aligned at the 61.8% Fibonacci retracement at $4,605.89, ahead of a secondary floor at the 78.6% level at $4,560.62 and the prior swing low region at $4,502.95. On the topside, initial resistance emerges at the 50% retracement at $4,637.69, followed by a thicker congestion zone between the 38.2% retracement at $4,669.49 and the 200-hour SMA at $4,673.40, with further recovery likely to face a stronger cap at the 23.6% retracement near $4,708.83.
(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.
