Gold (XAU/USD) retreated on Monday, consolidating its recent gains as the US dollar strengthened and modest profit‑taking followed a rebound from a seven‑month low of $3,941. At the time of writing, the pair was trading around $4,150 after briefly surpassing $4,200 during the Asian session.
Although the intraday decline occurred, downside pressure on gold appears limited after the weaker‑than‑expected US non‑farm payrolls data on Thursday reduced expectations of an immediate Federal Reserve rate hike.
At the same time, inflation risks linked to oil are easing as shipping through the Strait of Hormuz improves following the recent 60‑day memorandum of understanding between the United States and Iran, suggesting the Fed may not need to tighten policy as sharply as markets anticipated.
Nevertheless, monetary policy is expected to stay restrictive until inflation shows clear signs of cooling. Traders currently assign a 56% probability of a rate increase at the September meeting, according to the CME FedWatch Tool.
Fed Governor Christopher Waller said on Monday that policymakers remain committed to a 2% inflation target, which he described as a credible pledge, but noted that the exact target is an overly stringent benchmark.
The United States and Iran have not yet finalized a comprehensive agreement, and the management of the Strait of Hormuz remains a pivotal issue. Tehran considers the waterway part of its sovereign territory and seeks to impose transit tolls. The next round of negotiations is slated to resume later this week, after the funeral of Iran’s Supreme Leader.
Geopolitical risks persist, and with the expectation that the Fed will maintain higher borrowing costs, the US dollar continues to attract demand. The Dollar Index (DXY), which measures the greenback against a basket of six major currencies, hovered near 100.00, up 0.10% on the day.
A stronger dollar makes gold more expensive for holders of other currencies, while rising interest rates reduce the attractiveness of the non‑yielding asset.
The US economic calendar is relatively light this week. The ISM Services PMI rose to 54.0 in June, in line with forecasts and marking the 23rd consecutive month of expansion, although it slipped slightly from 54.5 in May.
Market participants are now watching the ADP employment change (four‑week average) on Tuesday, the FOMC minutes on Wednesday, and weekly initial jobless claims on Thursday.
These data releases could provide fresh insight into the Fed’s next move and affect the direction of both the US dollar and gold.
Technical analysis: XAU/USD holds above $4,000, upside remains limited
The daily chart shows XAU/USD trading just below the 20‑day simple moving average of the Bollinger Bands, around $4,146.96, which limits near‑term upside potential.
The RSI sits near 46, indicating modest momentum, while the MACD remains positive, implying that upside attempts are still feasible though not yet decisive.
Key support levels include the Bollinger SMA pivot near $4,147 and a horizontal barrier at $4,000; a breach below could reveal the lower Bollinger Band around $3,948.
To signal a stronger rally, XAU/USD would need to break above the upper Bollinger Band near $4,347, with a daily close above that level likely restoring bullish bias.
Gold FAQs
Gold has long served as a store of value and medium of exchange. Today, beyond its aesthetic appeal and jewelry use, it is regarded as a safe‑haven asset, offering investors a reliable refuge during periods of market turbulence. It also provides a hedge against inflation and currency depreciation, as it is not tied to any particular government or issuer.
Central banks are the largest holders of gold. To bolster confidence in their currencies during volatile periods, they diversify reserves by purchasing gold, which reinforces the perception of economic strength and solvency. In 2022, central banks added 1,136 tonnes of gold — valued at roughly $70 billion — according to the World Gold Council, marking the highest annual acquisition on record. Nations such as China, India and Turkey are rapidly expanding their gold holdings.
Gold exhibits an inverse relationship with the US dollar and US Treasury securities, both of which function as primary reserve and safe‑haven assets. When the dollar weakens, gold typically gains value, allowing investors and central banks to diversify their portfolios. Additionally, gold’s price often moves opposite to risk assets; equity rallies tend to depress gold prices, whereas market downturns can boost demand for the precious metal.
Gold prices are influenced by a variety of factors. Geopolitical tension or recession concerns can trigger rapid price increases due to gold’s safe‑haven appeal. As a non‑yielding asset, gold tends to rise when interest rates fall, while higher rates generally exert downward pressure. Because gold is denominated in US dollars, the strength of the dollar is a key driver: a strong dollar tends to cap gold prices, whereas a weaker dollar often pushes them higher.
