Gold (XAU/USD) maintained slight intraday gains before the European session opening but lacked sustained buying momentum, remaining below the $5,200 threshold. Persistent geopolitical risks, particularly escalating tensions in the Middle East, continued to support the precious metal's safe-haven appeal, extending its rebound from the previous day's levels near the key psychological level of $5,000.
The modest uptick in gold prices, coupled with their ability to hold above critical support, is driven by several converging factors: 1. Renewed Middle East geopolitical risks (primary safe-haven driver) Iranian officials dismissed former President Trump’s statement that "Middle East conflicts will end soon" as "absurd," warning that "regional security is either for everyone or for no one." The Islamic Revolutionary Guard Corps (IRGC) further emphasized that Tehran, not Washington, would decide when the war ends. This has reignited market concerns over a potential closure of the Strait of Hormuz and subsequent supply disruptions, boosting safe-haven demand and directly supporting gold prices. 2. Crude oil rebound amplifies inflation and stagflation concerns After a sharp pullback from multi-month highs the previous day, oil prices regained positive traction. Investors worry that escalating conflict in the Middle East could lead to prolonged energy supply disruptions if the Strait of Hormuz is closed, thereby fueling inflation and potentially delaying the Federal Reserve's interest rate cut timeline. This "stagflation" narrative has enhanced gold's appeal as an inflation hedge. 3. Retreat in U.S. Treasury yields weakens the U.S. dollar (technical support) U.S. Treasury yields retreated from their recent highs, pulling the U.S. dollar index further away from its recent peak. As a non-yielding asset, gold benefits from a weaker dollar, especially amid heightened safe-haven sentiment and strengthened negative correlation with the greenback. 4. Technical indicators show mild bullish signals On the 4-hour chart, XAU/USD has been trading within a range for over a week, with the rising 200-period EMA (around $5,010) providing solid support near the range’s lower boundary, serving as a short-term pivot. The MACD line has turned positive and crossed above its signal line, while expanding positive histogram bars indicate strengthening upward momentum. The RSI hovering above 50 suggests accumulating bullish pressure without being overbought.
In the short term, gold bulls need to break through resistance near the upper boundary of the trading range around $5,200 to confirm stronger upward momentum. As long as prices hold above the dual support levels of $5,140 and $5,010, the bullish structure remains intact. Should geopolitical risks persist or oil prices continue to rebound, gold may test $5,230 or higher.
From a medium-term perspective, gold's trajectory will heavily depend on this week’s U.S. inflation data (CPI on Wednesday and PCE price index on Friday). Stronger-than-expected inflation figures could reinforce expectations of delayed Fed rate cuts, boosting the dollar and weighing on gold. Conversely, softer data may rekindle rate cut hopes, benefiting non-yielding assets like gold. Investors should closely monitor developments in the Middle East, particularly regarding the Strait of Hormuz and Iran’s statements.
Risk factors include a sudden de-escalation of geopolitical tensions or stronger reconciliation signals from Trump’s team, which could reduce safe-haven demand. Additionally, significantly stronger CPI/PCE data may reinforce hawkish Fed expectations, strengthening the dollar and pressuring gold. A larger-than-expected drop in oil prices could also ease inflation concerns, undermining gold's inflation-hedge narrative.