Gold (XAU/USD) edges higher on Monday as the US Dollar (USD) softens amid improving market sentiment, with traders reacting to fresh diplomatic developments aimed at ending the US-Iran war. At the time of writing, XAU/USD is trading around $4,691, rebounding from an intraday low near $4,600.
Ceasefire talks between US and Iran support risk sentiment
According to Axios, the US and Iran, along with regional mediators, are discussing a potential 45-day ceasefire that could help end the war, citing four US, Israeli and regional sources with knowledge of the talks.
Separately, Reuters reported that both Washington and Tehran have received a plan for a two-step deal to end hostilities, which could come into effect as early as Monday and reopen the Strait of Hormuz.
Meanwhile, Iran’s Foreign Ministry spokesperson, Esmaeil Baghaei, said Tehran has formulated its diplomatic response to the US and will announce it in due course, according to SNN.
These developments follow weekend remarks from US President Donald Trump, who threatened to carry out strikes on power plants and other civilian infrastructure if the Strait of Hormuz is not reopened and no deal is reached by Tuesday, 8:00 p.m. Eastern Time.
Oil eases but remains elevated, keeping inflation risks alive
While markets remain cautious about whether a final deal will be reached, ongoing diplomatic efforts are helping ease immediate tensions. In response, Oil prices have pulled back slightly from recent highs, though they remain elevated compared to pre-war levels, keeping inflation risks and concerns about global economic growth in focus.
Against this backdrop, markets are increasingly expecting major central banks, particularly the Federal Reserve (Fed), to keep interest rates higher for longer, or even raise them. This is limiting Gold’s upside, as higher yields reduce the appeal of the non-yielding metal, even as geopolitical tensions would normally support it.
In the near term, market moves are likely to hinge on incoming US economic data, Fed signals and geopolitical developments.
The US economic calendar this week includes the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) Price Index, which will provide further insight into the inflation outlook and the Fed’s monetary policy path, following last week’s stronger-than-expected Nonfarm Payrolls (NFP) report. Later in Monday’s American session, the ISM Services Purchasing Managers Index (PMI) will be in focus.
Technical analysis: XAU/USD gains traction as momentum indicators turn positive
From a technical perspective, the outlook for XAU/USD is improving, with momentum indicators showing early signs of recovery. On the daily chart, the pair is attempting to stabilize above the 100-day Simple Moving Average (SMA) at 4,654, which is now acting as immediate support.
A sustained hold above this level could pave the way for a move toward 4,800, marking Friday’s high, followed by the 50-day SMA near 4,944, which may cap further gains.
The Relative Strength Index (RSI) has stabilized just below the 50 mark after recovering from oversold territory, suggesting fading downward pressure but not yet a clear bullish resurgence.
Meanwhile, the Moving Average Convergence Divergence (MACD) line has turned higher above its signal line and is gradually moving back toward the zero line, pointing to improving momentum.
On the downside, a break below the 100-day SMA could expose the 4,350 region, near last week’s low, with further support seen at 4,100, corresponding to the March swing low.
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.
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