Gold is easing from ten-day highs just above $4,200 early Monday, as risk sentiment turns sour and revives safe-haven demand for the US Dollar (USD).
Gold: A sell-on-rise trade?
Gold appears to snap its recovery momentum from seven-month lows of $3,942, reached a week ago, as fresh concerns around the Strait of Hormuz and the peace talks between the United States (US) and Iran sap investors’ confidence, lifting the Greenback from its lowest level in two weeks across its major competitors.
Iran’s ambassador to China, Abdolreza Rahmani Fazli, confirmed that Tehran plans to introduce new service fees for ships passing through the Strait of Hormuz.’
Meanwhile, the Iranian Parliament Speaker Mohammad Bagher Ghalibaf said Tehran will not enter into talks with the US on a final agreement until every clause of the MoU is implemented, including an end to hostilities in Lebanon and the release of frozen Iranian funds.
Additionally, the fresh uptick in the USD/JPY pair, due to sustained weakness in the Japanese Yen (JPY), helps the buck to attempt a recovery, even as intervention fears loom.
Looking ahead, attention will remain on the Middle East headlines for the next move in the USD and Gold, as markets scale back bets for a September interest rate hike by the US Federal Reserve, following a weak June Nonfarm Payrolls (NFP) report released last Thursday.
The US NFP increased by 57,000 in June, well below expectations for a 110,000 rise. The Labor Force Participation Rate dropped to 61.5%, a more than five-year low.
Gold traders will also remain alert to the return of liquidity as US traders resume after a long weekend break. The US celebrated Independence Day on Friday, which likely extended into the weekend.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,164.20. The metal holds a bearish near-term bias as it remains below the 50-day simple moving average (SMA) at roughly $4,392, the 200-day SMA near $4,488 and the 100-day SMA around $4,628, leaving price capped by a dense band of overhead trend resistance. The 21-day SMA at about $4,157 now acts as immediate support just beneath spot, while the Relative Strength Index (14) hovering around 46 suggests subdued, slightly negative momentum rather than an oversold condition.
Further, the Death Cross remains in play after the 50-day SMA closed below the 200-day SMA on a weekly closing basis, keeping sellers hopeful.
On the topside, initial resistance emerges at the 50-day SMA near $4,392, followed by the 200-day SMA around $4,488 and then the 100-day SMA close to $4,628, levels that would need to be reclaimed to ease the broader bearish pressure. On the downside, the first support to watch is the 21-day SMA at approximately $4,157; a daily close below this short-term floor would open the door to further weakness toward lower chart levels not yet tested in this current downswing.
(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.
Source: Original Article
