Gold (XAU/USD) adds to its recent steep decline witnessed over the past three weeks or so and attracts heavy follow-through selling for the fourth consecutive day on Monday. The commodity dives to a fresh year-to-date low, below the $4,200 mark during the early European session amid hawkish stances from major central banks, which backs the case for further losses.
The Bank of Japan (BoJ) maintained its bias toward monetary policy normalization and warned that surging Crude Oil prices driven by the Middle East conflict could exacerbate inflationary pressures. Adding to this, the Bank of England (BoE) signaled a hawkish shift and potential interest rate hikes as early as April due to inflation stemming from the Iran war. Furthermore, the European Central Bank’s (ECB) hawkish messaging suggested that policymakers were prepared to act as soon as April 30 if price pressures intensify due to rising geopolitical tensions.
Meanwhile, the US Federal Reserve (Fed) raised the year-end inflation outlook (PCE), citing risks from higher energy prices due to the Iran war, and projected only one interest rate reduction this year, and one in 2027. This remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the US Dollar (USD), which turns out to be another factor exerting downward pressure on the Gold price. The aforementioned factors, to a larger extent, offset a further escalation of geopolitical tensions, which tends to benefit the safe-haven precious metal.
In the latest developments, US President Donald Trump issued a 48-hour deadline for Iran to reopen the Strait of Hormuz and threatened to target Iran’s energy infrastructure if the demand is not met. Iran responded by threatening to escalate strikes on energy infrastructure and target critical water desalination facilities across the Middle East, should Trump make good on a promise to “obliterate” the country’s power plants. This, however, does little to lend any support, suggesting that the path of least resistance for the Gold is to the downside.
XAU/USD 4-hour chart
Gold bears seem unstoppable and now eye the key 200-day SMA support
The near-term bias is bearish as the XAU/USD pair extends a sharp slide away from the recent $5,300 region, with the daily Relative Strength Index (RSI) dropping to oversold territory and highlighting strong selling pressure. Momentum deteriorates further, with the Moving Average Convergence Divergence (MACD) indicator deepening in negative territory and its histogram expanding on the downside, which reinforces the view that bears retain control despite stretched conditions. The Gold is now approaching the rising 200-day Simple Moving Average (SMA) around $4,095, which could act as a near-term floor.
(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.
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