- Gold retreats from a two-month high of $3,452 despite the ongoing tension in the Middle East.
- Markets remain focused on the Israel-Iran conflict and rising global geopolitical risks.
- The US Dollar (USD) is experiencing a slight boost from a rise in 10-year and 30-year Treasury yields ahead of Wednesday’s Fed Meeting.
Gold is trading lower on Monday as a combination of profit-taking and geopolitical risks continues to drive prices.
At the time of writing, XAU/USD is trading around $3,390, as it retreats below the former $3,400 psychological support level.
The metal’s safe-haven appeal, coupled with swings in US 10-year Treasury yields, remains the principal driver of prices; however, profit-taking at elevated levels has capped further gains. Geopolitical tensions continue to underpin demand: the conflict between Israel and Iran, now entering its fourth day, shows no sign of easing, and calls for de-escalation by the United Nations, Saudi Arabia, and the US have gone unheeded.
According to Reuters, US President Trump said he “hopes Israel and Iran can broker a deal,” yet conceded that “sometimes they have to fight it out.” Such mixed signals have hinted at potential rapprochement and outright conflict, keeping the risk premium elevated even as traders lock in profits.
Daily digest market movers: Gold remains supported by Israel-Iran conflict
- Israel’s attack on Iran has targeted military and nuclear sites. The so-called “Operation Rising Lion” was launched by Israeli leadership on Thursday evening and has resulted in the deaths of Iranian military leaders, scientists, and civilians.
- The International Atomic Energy Agency (IAEA) reported on the attacks on Friday. The recent statement indicates that a few facilities have been damaged in Iran so far. The Natanz enrichment facility has sustained significant damage. The Isfahan (Esfahan) Nuclear Technology Center was also targeted, resulting in damage to the uranium metal production facilities.
- Iran’s health ministry has reported that the death toll is currently at 224. According to CNN, Israel’s death toll has currently been reported at 24. Both countries have broadened the scope of the attacks as the conflict enters its fourth day.
- The United States will hold a 20-year Bond Auction during the American session at 17:00 GMT. The auction will test the bond market after concerns about US debt sustainability have increased. The bond yield in the latest such auction – the interest rate a holder receives for investing in a bond – stood at 5.047%, the highest level since October 2023. Yields have an influence on the US Dollar’s valuation as higher bond yields can attract investment into the US Dollar, thus putting pressure on Gold prices.
- The Federal Reserve (Fed) will announce its interest rate decision on Wednesday. Investors broadly expect the Fed to maintain rates at the current range of 4.25%-4.50%.
- The Federal Reserve Open Market Committee (FOMC) Meeting will be closely monitored, as will the Fed Press Conference and the Summary of Economic Projections (popularly known as the dot plot). These events will provide insight into the economic risks and factors that the Fed is watching, which will be delivered by Fed Chair Jerome Powell. The focus will be on the projected forecast on the interest rate trajectory and the outlook for the US given the current conditions.
Gold technical analysis: XAU/USD dips below $3,400
Gold prices are weakening on Monday, erasing a portion of last week’s 3.70% rally. With prices currently threatening a break above the $3,400 psychological level, the 4-hour chart shows that the 20-period Simple Moving Average (SMA) is providing additional support at the same level.
The immediate upside hurdle above $3,400 emerges at around $3,439, which marked the monthly high in May. The next level of resistance for the short-term move sits at $3,446, which came into play on Friday, and the daily high at $3,452. A break of this level could result in a retest of the $3,500 record high set in April.
On the downside, initial support lies at the 20-period Simple Moving Average (SMA) on the 4-hour chart. The 23.6% Fibonacci retracement of the April move sits at $3,372, with a move below bringing the 50-period SMA into play at $3,363.
Gold (XAU/USD) 4-hour chart
Meanwhile, the Relative Strength Index (RSI) indicator on the 4-hour chart is at 50, resembling neutral momentum after falling below overbought conditions, suggesting that the bullish bias remains intact, albeit with a slight easing of momentum.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
