Gold drops to fresh two-month low as markets focus on inflation risks, US PCE data
- Gold declines to a fresh two-month low amid renewed escalation between the US and Iran.
- The metal remains under pressure as rising Oil prices fuel inflation concerns and boost higher-for-longer interest rate expectations.
- Technically, XAU/USD remains bearish as the latest leg lower pushes price near the 200-day SMA.
Gold (XAU/USD) falls to a fresh two-month low on Thursday as renewed attacks in the Middle East keep traders doubtful about a quick end to the US-Iran war. At the time of writing, XAU/USD is trading at $4,386 after hitting an intraday low of $4,366.
US armed forces carried out a second “defensive” strike this week on Iranian military facilities. In response, Iran’s Islamic Revolutionary Guard Corps (IRGC) claimed it targeted a US airbase in the Gulf region and warned of “more decisive” action if US “aggression” continues, according to state media.
The renewed escalation comes even as both sides remain engaged in talks, though negotiations continue to face hurdles over Iran’s nuclear program and control of the Strait of Hormuz. Tehran is also pushing for sanctions relief and the release of frozen Iranian assets. US President Donald Trump told PBS News on Wednesday that Iran would not receive sanctions relief in exchange for giving up highly enriched uranium.
Against this backdrop, traders continue to favor the US Dollar (USD) over Gold as a safe-haven asset. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 99.35 after hitting a seven-week high of 99.54 earlier in the day.
The metal has remained on the back foot since the war began in late February, as markets increasingly focus on inflation risks stemming from rising Oil prices.
Higher energy costs are adding to inflationary pressures, heightening expectations that major central banks, including the Federal Reserve (Fed), may need to keep interest rates higher for longer or even raise them. As a result, US Treasury yields remain elevated, with the benchmark 10-year yield rebounding after easing from a 16-month high touched earlier this month.
Traders now look ahead to the US Personal Consumption Expenditures (PCE) Price Index report for fresh clues on the interest rate path. Economists expect the core PCE Price Index to rise 3.3% YoY in April, up from 3.2% in March.
According to the CME FedWatch Tool, markets are currently pricing in about a 40% chance of a 25-basis-point rate hike at the December meeting.
Fed Vice Chair Philip Jefferson said on Thursday that rising energy prices are “a downside risk to growth” and “a potential inflation driver.” He added that the Fed remains “firmly committed to restoring inflation to 2%” and noted that recent US economic activity “remains robust.”
Technical Analysis: Bears retain control below key moving averages
XAU/USD extends its bearish bias as price slips slightly below the 200-day Simple Moving Average (SMA) at $4,398 while remaining below the 50-day and 100-day SMAs.
The Relative Strength Index (RSI) at 34.48 hovers just above oversold territory on the daily chart, and the Moving Average Convergence Divergence (MACD) indicator remains in negative territory with a depressed histogram, which together suggest persistent downside pressure.
On the topside, initial resistance is seen at the 200-day SMA around $4,398, followed by the 50-day SMA near $4,628 and then the 100-day SMA around $4,800, which collectively cap recovery attempts.
On the downside, the next notable support aligns with the horizontal level at $4,100, where a sustained break would expose further weakness in the broader downtrend.
(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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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