Gold builds on intraday ascent amid modest USD pullback; upside potential seems limited
- Gold kicks off the new week on a downbeat note as the failed US-Iran peace talks underpin the USD.
- The door for further diplomacy remains open, capping the USD and supporting the commodity.
- Rallying Oil prices fuel inflationary fears and hawkish Fed bets, which should cap the XAU/USD pair.
Gold (XAU/USD) touches a fresh daily high during the first half of the European session and looks to build on its intraday bounce from the $4,633-$4,632 area, or a four-day low, touched earlier this Monday. The Wall Street Journal reported that regional countries are racing to bring the US and Iran back to the negotiating table within days after talks over the weekend ended without an agreement. This keeps the door open for further diplomacy and fails to assist the US Dollar (USD) in capitalizing on its intraday gains, which turns out to be a key factor offering some support to the commodity. However, the fundamental backdrop warrants caution before positioning for any meaningful upside for the precious metal.
US Vice President JD Vance said that he placed a final and best offer on the table, but Iran declined to accept the terms, leading to a stalemate. Iranian state media said that excessive demands sank the possibility of a deal. Meanwhile, US President Donald Trump said on Sunday the US Navy would start blockading the Strait of Hormuz, jeopardizing a fragile two-week ceasefire. Moreover, continued Israeli strikes in Lebanon raise the risk of a renewed escalation of tensions in the Middle East, which could benefit the USD's reserve currency status. This, along with expectations that major central banks will adopt a more hawkish stance due to the war-driven surge in energy prices, might contribute to capping the upside for the non-yielding Gold.
In fact, West Texas Intermediate (WTI) – the benchmark US Crude Oil price – rallies back to the $98/barrel mark in reaction to the latest geopolitical developments. This comes on top of data released on Friday, which showed that inflation in the US surged by the most in nearly four years during March. According to the US Bureau of Labor Statistics, the headline US Consumer Price Index (CPI) rose 0.9% from February and picked up to 3.3% from a year ago. This led investors to abandon bets on Fed rate cuts this year and shift focus to potential interest rate hikes. The outlook, in turn, triggers a fresh leg up in US Treasury bond yields and validates the USD bullish bias, warranting caution before placing aggressive bullish bets around the XAU/USD pair.
XAU/USD 1-hour chart
Gold tests 100-hour SMA support breakpoint; not out of the woods yet
The commodity maintains a mildly bearish near-term tone as it holds beneath the 100-hour Simple Moving Average (SMA) support breakpoint. Moreover, the Moving Average Convergence Divergence (MACD) remains in negative territory despite contracting bearish readings. Adding to this, the Relative Strength Index (RSI) lingers below the midline near 44, suggesting that downside pressure persists but with waning momentum.
On the topside, immediate resistance is located at the 100-hour SMA around $4,732.63, and a sustained break above this barrier would be needed to ease the current downside bias and open the way for a stronger recovery. On the flip side, any pullback from current levels would likely see traders watching prior session lows and short-term swing troughs as the next potential demand areas.
(The technical analysis of this story was written with the help of an AI tool.)
(This story was corrected on April 13 at 11:49 GMT to say that WTI rallies back to the $98/barrel mark, not $105/barrel.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.