- Increased risk aversion has driven gold to reach new monthly highs.
- Israel’s safety measures following their attack on Iran have heightened the drive for security.
- The focus for XAU/USD bulls is now on the record highs of $3,440 and $3,495.
XAU/USD has been on an upward trend for three consecutive days as of Friday, with weekly increases surpassing 3%. The attack by Israel on Iran has significantly affected market sentiment, sending investors seeking safety and pushing up gold and other traditional safe-haven assets.
Israel launched a comprehensive strike on Iran early Friday, targeting nuclear facilities and killing high-ranking members of the revolutionary guard. In response, Iran conducted a drone attack and exited nuclear negotiations with the U.S., stoking fears of a potential full-scale war in the area, which has led to a pronounced risk-off sentiment.
Technical Analysis: XAU/USD Bulls eye $3,440 with $3,495 in view
Once more, technical indicators are indicating an upward trend. The RSI on the 4-hour chart is high but remains below the overbought threshold. Even with a generally strong dollar, the fundamental context supports bullish sentiment, and bearish movements have been limited thus far.
Precious metals are currently trading at the upper bounds of a wedge pattern with resistance at $3,425. For the bulls to shift their attention towards the previous high of $3,495 reached in late April, these levels need to be surpassed.
If prices decline, support remains above the previous resistance at $3,400 (the high from June 5). A drop below this level would draw focus to the low from June 12, as well as the base of the wedge pattern, both near $3,345.
XAU/USD 4-hour chart
Gold FAQ
Gold has historically held significant value due to its widespread use as a medium of exchange. Beyond its aesthetic appeal, it’s increasingly viewed as a safe haven asset, especially in turbulent times. Many consider gold a solid investment as it often hedges against inflation and currency depreciation since it’s not reliant on any particular issuer.
Central banks are major holders of gold as a means to stabilize currency in difficult periods. They often buy gold to diversify reserves and bolster the perceived strength of their economies. For instance, central banks added 1,136 tonnes of gold to their reserves in 2022—worth around $70 billion—marking the largest yearly acquisition on record. Countries like China, India, and Türkiye are notably increasing their gold reserves.
Gold typically has an inverse relationship with the U.S. dollar and Treasury bonds. When the dollar declines, gold prices tend to increase, allowing diversification during market turmoil. Conversely, a strong stock market can lead to lower gold prices, while downturns in high-risk markets often favor precious metals.
Various factors influence gold prices, including geopolitical instability and economic downturns, which can rapidly drive prices up. Gold, being a non-yielding asset, tends to thrive in low-interest environments; high rates, in contrast, can weigh on its value. However, the primary movement hinges on the dollar’s behavior, as gold prices are denominated in dollars. A stronger dollar usually keeps gold prices suppressed, while a weaker dollar can boost them.
