Gold price (XAU/USD) extends its gains for the second successive session on Thursday as traders seek safety amid the ongoing war in the Middle East. US and Israeli strikes across Iranian territory and widespread Iranian missile and drone retaliation across the Middle East, including attacks on regional targets and military sites, prolong the crisis and its impact.
A US submarine reportedly sank an Iranian warship off the coast of Sri Lanka, escalating hostilities. US Defense Secretary Pete Hegseth called it the “first such attack on an enemy since World War II.” The broader campaign has entered its sixth day, heightening fears of a prolonged conflict.
The dollar-denominated Gold attracts investors as the US Dollar (USD) weakens on tentative hopes that the Middle East conflict may be shorter than feared. It is worth noting that a weaker US Dollar makes the precious metal cheaper for buyers with foreign currencies, boosting demand.
Reuters cited The New York Times reporting that Iran’s Ministry of Intelligence signalled to the US Central Intelligence Agency (CIA) a willingness to explore talks to end the war. However, Tehran later denied the report, leaving the conflict’s duration and economic fallout uncertain.
Meanwhile, the US is set to introduce a temporary 15% global tariff this week, replacing the 10% rate enacted after the Supreme Court invalidated most of President Donald Trump’s earlier levies. Treasury Secretary Scott Bessent said the rate could return to previous levels within five months as fresh trade probes advance.
The upside in non-yielding Gold may be capped as surging oil and gas prices rekindle inflation fears, prompting traders to push back expectations for Federal Reserve (Fed) rate cuts. Meanwhile, the US 10-year Treasury yield rose for a fourth straight session, climbing to 4.11% as markets assessed developments in the Iran conflict, tariff updates, and incoming economic data.
Gold rises to near $5,200 as bullish bias prevails
Gold price (XAU/USD) is trading around $5,190 at the time of writing. The technical analysis of the daily chart suggests a bullish bias as the metal price remains within the ascending channel pattern.
Additionally, the near-term bias is mildly bullish as the Gold price holds above the rising 50-day Exponential Moving Average (EMA) and consolidates after reclaiming the short-term nine-day EMA, which now tracks just below the market. Momentum remains positive but not overstretched, with the 14-day Relative Strength Index (RSI) hovering in the mid-50s, indicating steady buying pressure rather than exuberant strength and keeping scope for further upside while this structure persists.
The XAU/USD pair may explore the region around the upper boundary of the ascending channel at $5,470, followed by the all-time high of $5,598, reached on January 29. On the downside, the immediate support lies at the nine-day EMA of $5,163, followed by the lower boundary of the channel at $5,070. A break below the channel would expose the 50-day EMA at $4,874.
(The technical analysis of this story was written with the help of an AI tool.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
