Gold Price Forecast: XAU/USD dives to $4,500 amid simmering tensions in Iran
- Gold retreats to $4,500 affter failing to breach resistance at the $4,590 area.
- Growing concerns about the resumption of hostilities in Iran are buoying the safe-haven USD.
- The ISM Manufacturing PMI is likely to provide additional support to the USD.
Gold (XAU/USD) trades lower on Monday, reverting Friday’s gains and returning to the $4,500 atrea following rejection at the $4,590 resistance area. Precious metals remain weighed, as tensions between Iran and the US escalate and Israel ramps up operations in Lebanon, and with a data-busy week ahead in the US.
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The US and Iran exchanged attacks earlier on Monday, and Israel extended its occupation in Lebanon, adding strain to a frail ceasefire in the region. US President Donald Trump is still due to sign the memorandum of understanding that would extend the truce, while in Iran, the speaker of the parliament vowed retaliation to “clear evidence of US non-compliance with the ceasefire.”
On the data front, the US ISM Manufacturing Purchasing Manager’s Index (PMI) report, due later on Monday, is expected to show a healthy business activity, likely to support the Greenback. Investors, however, will wait for a string of labour data, with particular interest on Friday’s Nonfarm Payrolls for further insight into the Federal Reserve’s (Fed) monetary policy plans.
Technical Analysis: Gold remains vulnerable below $4,600
XAU/USD trades at $4,500, after yet another rejection at the $4,590 area on Friday. Momentum indicators in the 4-hour chart hint at fading bullish pressure, with the Relative Strength Index (RSI) hovering near 50 and the Moving Average Convergence Divergence (MACD) indicator flattening near the zero level
Bears are set to test Friday's low in the $4,490 area, which is likely to provide some support. Further down, the May 28 low, near $4,365, will come into focus. On the upside, bulls need to break the mentioned $4,590 resistance area (May 19, 25, 26, and 29 highs) to shift the focus towards mid-May lows at the $4,645 area and the top of the bearish channel, at $4,670.
(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.