Gold is holding firm above $4,400 in Asia on Tuesday, extending its bullish run into a third consecutive day. Traders now look forward to Wednesday’s US Consumer Price Index (CPI) release for the next major move.
Gold shrugs off elevated Oil prices, for now
All that’s glittering so far this week is Gold, and rightly so, as bulls continue to cheer fading expectations for a US Federal Reserve (Fed) interest rate hike in September.
The odds of such a move now remain at a coin-toss level, per CME Group’s FedWatch Tool, in the aftermath of the unexpected 23,000-job decline in Nonfarm Payrolls in July.
This narrative has weighed heavily on the US Dollar (USD) across the board, supporting bullion. That was accompanied by optimism over the reopening of the Strait of Hormuz and easing Oil prices and inflation concerns.
However, the overnight surge in Oil prices restokes inflationary fears, particularly after negotiations between the United States (US) and Iran over a peace deal and the reopening of the Strait of Hormuz hit an impasse.
“In a post on Truth Social on Monday, US President Donald Trump said he was issuing the demand for war reparations in response to Iranian negotiators making similar claims for damages for the five-month war that has killed thousands and devastated Iran’s military and economy,” per The Guardian.
In an additional setback to the diplomatic efforts, Iranian outlets and a X post by an adviser to Parliament Speaker Mohammad Bagher Ghalibaf reported that Tehran will wait until the US President’s term ends on January 20, 2029, to resume talks.
The renewed pessimism around the Mideast conflict has fuelled risk aversion across Asia, sending Oil prices and US Treasury bond yields higher.
Against this backdrop, it remains to be seen if Gold sustains the ongoing uptrend. The bright metal also risks a corrective decline on likely profit-taking, as traders could opt for repositioning ahead of the critical US inflation report due on Wednesday.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,427.44. The metal holds a bullish near-term tone as spot price trades above the 21-day, 50-day and 100-day simple moving averages (SMAs), with the latter now offering nearby trend support around $4,389.72. The 200-day SMA at $4,498.91 remains the primary overhead barrier, capping further upside for now. The Relative Strength Index (14) at 69.22 flirts with overbought territory, suggesting buying pressure is strong but vulnerable to consolidation if momentum cools.
On the topside, immediate resistance is defined by the 200-day SMA at $4,498.91, and a daily close above this level would open the door to a stronger bullish extension. On the downside, initial support is seen at the 100-day SMA near $4,389.72, followed by the 50-day SMA at $4,149.71 and the 21-day SMA at $4,120.24, which collectively form a broad underlying demand zone on any deeper pullbacks.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Additional insights: China extends PBOC buying streak and speculative longs rise
Analysts at ING note that gold “extended its rally last week after the People’s Bank of China increased its gold reserves by 640koz (around 20 tonnes), the largest monthly addition since October 2023.” They highlight that “official reserves have now risen for 21 consecutive months as China continues to diversify reserves and strengthen its position in the global bullion market,” underscoring the sustained central-bank demand backdrop.
Beyond official sector buying, ING points out that “speculative sentiment remained supportive across metals.” In precious metals specifically, “managed money increased net long positions in COMEX gold to the highest level since January, while net longs in COMEX silver rose for the first time in five weeks,” reinforcing the constructive tone across the complex.
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.
