Gold pulls back from $4,700 as Hormuz hopes cool haven demand
- Gold retreats below $4,700 as overbought RSI stalls momentum.
- Hormuz reopening hopes reduce safe-haven demand despite mixed US data.
- Core PCE and Warsh speech could reshape Fed rate bets.
Gold price holds firm during the North American session as buyers fail to surpass the $4,700 level, exacerbating a retracement below a key psychological level, amid mixed US data and rising hopes for an end to the US-Iran conflict. XAU/USD traded at $4,641, down 0.2%.
XAU/USD eases as overbought signals meet improving Middle East headlines
The yellow metal is consolidating as bullish momentum stalls, and the Relative Strength Index (RSI) turns overbought. Geopolitics continued to play a crucial role as news from the Middle East revealed that two US officials confirmed US President Trump’s announcement that the US Navy cleared the traffic separation scheme in the Strait of Hormuz, reported Axios.
Sources cited by Reuters mentioned that Gold, facing a key resistance near $4,700, capped the advance. Meanwhile, US housing data showed a slight improvement, while the ADP Employment Change 4-week average, coming in at 11.75K, exceeded the previous print of 9.5K.
US Building Permits in July rose 4.3% to 1.433 million, surpassing June's -2.6% contraction and estimates of 5%. The Conference Board Consumer Confidence missed estimates, coming in at 90.2, below 90.2. Households saw a slight improvement in business and jobs in August.
Boston Fed's Susan Collins expressed a hawkish stance, highlighting that inflation remains too great and voicing concern about price stability. She acknowledged that the labour market aligns with full employment and noted that the economy is expanding at a near-trend rate.
Meanwhile. Money markets remain sceptical that the Federal Reserve will raise rates at the September meeting, with the odds near 43% for a 25-basis-point rate hike and 57% for keeping rates steady, according to Prime Terminal.
Eyes turn to the release of the Federal Reserve’s favourite inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, ahead of the speech by the new Fed Chair, Kevin Warsh, at the Jackson Hole Symposium.
The US economic schedule will also feature Durable Goods Orders, Gross Domestic Product (GDP) figures and Initial Jobless Claims data.
XAU/USD technical outlook: Gold struggles at $4,700
Gold is trading sideways for the second straight day with buyers unable to clear $4,700. This exacerbated a retracement below the $4,650, while the Relative Strength Index (RSI) is aiming lower above the 70 overbought level. If the RSI falls below the latter, the XAU/USD could dive further and challenge key support levels.
The first support would be the $4,600 mark, followed by the 200-day Simple Moving Average (SMA) at $4,519. Below sits the $4,500 mark, followed by the 100-day SMA at $4,379.
For a bullish resumption, XAU/USD must reclaim $4,700. If the breakout succeeds, a move to the May 7 swing high of $4,764 is on the cards, followed by a test of $4,800. The next area of interest would be $5,000.
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.