Gold (XAU/USD) rallies to an over two-week high, around the $4,140-$4,141 area, during the Asian session on Wednesday amid hopes that US-Iran diplomacy could ease energy prices and temper hawkish US Federal Reserve (Fed) expectations. In fact, top negotiators for Iran and the US signaled that they have not walked away from talks. US Secretary of State Marco Rubio said on Sunday that the US was still open to holding talks with Iran, while Irans Interior Minister Eskandar Momeni visited mediator Pakistan and asked Islamabad to continue its efforts. Moreover, reports suggest that mediators are working to bring the US and Iran back to the negotiating table.
Meanwhile, the US military said it completed the 11th night of strikes on Iran early Wednesday, targeting aircraft hangars and drone storage sites. Adding to this, President Donald Trump warned that the US strikes would be intensifying and hit any site where Iran attempts to rebuild its nuclear program. Iran, on the other hand, continued attacks across the Gulf, targeting US military assets in Bahrain, Kuwait and Jordan. Adding to this, Iran said that its forces struck two oil tankers as they attempted to transit through the Strait of Hormuz. Furthermore, Yemens Iran-aligned Houthis opened a new front in the war and declared a naval blockade against Saudi Arabia.
The latest developments raise the risk of a broader regional conflict and could compound the shortfall in global energy markets amid the closure of the Strait of Hormuz. This, in turn, lifts crude oil prices to a fresh high since June 12 and fuels worries about energy-driven inflation, which could force the US central bank to stick to its hawkish stance. The CME Groups FedWatch Tool indicates that traders are currently pricing in around an 88% chance that the Fed will raise borrowing costs at least once by the end of this year. The outlook, in turn, favors US Dollar (USD) bulls and warrants some caution before positioning for any further appreciating move for the non-yielding Gold.
Gold recovery seen constrained as Fed and real yields remain in focus
Analysts at OCBC suggest that, in the current environment, gold is likely to see “two-way” trading in the near term, with any rebound facing clear headwinds. They argue that “a more sustained recovery likely requires oil prices to back off, some easing in real yields and Fed tightening expectations,” and caution that “until then, upside may remain capped.”
XAU/USD 4-hour chart
Gold could accelerate the positive move once 200-SMA on H4 is cleared
From a technical perspective, an intraday breakout through the 38.2% Fibonacci retracement level of the downfall since mid-June and acceptance above the $4,100 mark favor XAU/USD bulls. Furthermore, momentum indicators remain strong as the Relative Strength Index (14) hovers near overbought territory around 69.9, and the Moving Average Convergence Divergence (MACD) stays positive with the line well above zero. This, in turn, hints that upside pressure is still in play even if stretched.
That said, a sustained move beyond the 200-period Simple Moving Average (SMA) on the 4-hour chart is needed to reaffirm the constructive outlook. The precious metal might then test the initial resistance at the 50.0% retracement at $4,163.16 and then the 61.8% Fibo. retracement at $4,215.39. This is followed by the 78.6% level at $4,289.75 before the cycle high at $4,384.47.
On the downside, immediate support is seen at the 200-period SMA around $4,128.26, ahead of the 38.2% retracement at $4,110.93 and the 23.6% Fibo. level at $4,046.31, with a deeper floor coming in near the structural low at $3,941.85.