Gold Hits New YTD Low as Hawkish Policy Pressure Grows

Key Moments

Gold Sells Off to Fresh Lows Despite Safe-Haven Backdrop

Gold (XAU/USD) extends the sharp decline that has unfolded over roughly the past three weeks, with selling momentum intensifying for a fourth straight session on Monday. The metal drops to a new year-to-date trough, sliding below the $4,200 level in early European trading as increasingly hawkish tones from major central banks reinforce expectations for further weakness.

Views from policymakers at the Bank of Japan (BoJ), Bank of England (BoE), and European Central Bank (ECB) collectively point toward a tighter policy bias in response to persistent inflation risks. That policy backdrop continues to overshadow Gold’s traditional appeal as a safe-haven asset, even as geopolitical tensions escalate.

Central Banks Turn More Hawkish as Inflation Concerns Mount

The BoJ maintains its inclination toward gradually normalizing monetary settings and cautions that rising Crude Oil prices, driven by conflict in the Middle East, could amplify inflationary pressures. The BoE, for its part, signals a more hawkish stance and the possibility of rate increases as early as April, tying the move to inflation pressures connected with the Iran war.

At the same time, the ECB’s communication remains firmly hawkish, with officials indicating they stand ready to act as soon as April 30 if price dynamics worsen in response to intensifying geopolitical risks. Together, these stances reinforce the perception that major central banks are willing to maintain or increase policy restraint to contain inflation.

Fed Outlook Supports Yields and the US Dollar, Weighing on Gold

In the United States, the Federal Reserve raises its year-end inflation (PCE) projection, highlighting the risk that higher energy prices tied to the Iran war could filter through to broader inflation. The Fed also signals expectations for only one rate cut in the current year and one additional cut in 2027.

This policy path underpins elevated US Treasury yields and continues to provide support for the US Dollar (USD). The stronger USD, in turn, adds to the downward pressure on Gold prices. These macro drivers largely offset the normally supportive impact that rising geopolitical uncertainty would have on the safe-haven metal.

Geopolitical Tensions Intensify but Offer Limited Support

Geopolitical risks increase further as the situation around the Strait of Hormuz deteriorates. In the latest developments, US President Donald Trump issues a 48-hour ultimatum for Iran to reopen the crucial shipping channel and threatens to target Iran’s energy infrastructure if the demand is not met.

Iran responds by threatening to escalate strikes on energy infrastructure and to target key water desalination facilities across the Middle East should Trump follow through on a pledge to “obliterate” the country’s power plants. Despite the severity of these threats, Gold fails to attract sustained safe-haven flows, underscoring that, for now, the dominant trend in XAU/USD remains to the downside.

Technical Picture: Bears Drive XAU/USD Toward 200-Day SMA

From a technical standpoint, the short-term outlook for Gold remains decisively bearish. The XAU/USD pair continues to fall sharply from the recent $5,300 area, and the daily Relative Strength Index (RSI) has slipped into oversold territory, reflecting intense selling pressure.

Downside momentum is reinforced by the Moving Average Convergence Divergence (MACD) indicator, which is deeply negative, with its histogram extending further below the zero line. This configuration supports the view that sellers retain the upper hand, even as conditions appear stretched.

Prices are now moving closer to the rising 200-day Simple Moving Average (SMA), located around $4,095, which could offer a nearby area of support and potentially act as a short-term floor for the metal.

(The technical analysis of this story was written with the help of an AI tool.)

Background: Gold’s Role in Portfolios

Gold has historically held an important position as both a store of value and a medium of exchange. Beyond its aesthetic appeal and use in jewelry, the metal is broadly regarded as a safe-haven instrument, often considered a defensive holding in periods of market stress. Investors and institutions also commonly view Gold as a hedge against inflation and currency depreciation because it is not tied to the creditworthiness of any single issuer or government.

Central Banks and Gold Demand

Central banks are the largest holders of Gold globally. To reinforce confidence in their currencies during volatile periods, these institutions frequently diversify their reserves by adding Gold, which can strengthen perceptions of economic and financial stability. High levels of Gold reserves are often associated with enhanced trust in a country’s solvency.

Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Correlation Dynamics and Key Price Drivers

Gold typically exhibits an inverse relationship with the US Dollar and US Treasuries, both of which are also regarded as reserve and safe-haven assets. When the Dollar weakens, Gold often gains as investors and central banks seek diversification. Conversely, a stronger Dollar tends to exert pressure on Gold prices.

The metal is also inversely correlated with risk assets: broad stock market rallies frequently coincide with softer Gold prices, while equity market sell-offs tend to bolster demand for the precious metal.

A variety of macro factors can drive price fluctuations in Gold. Heightened geopolitical tensions or concerns about a severe economic downturn can quickly lift prices owing to its safe-haven appeal. As a yield-less asset, Gold generally benefits from lower interest rates, while higher borrowing costs are usually a headwind. However, much of Gold’s movement is closely linked to the performance of the US Dollar, as the metal is priced in dollars (XAU/USD). A robust Dollar often keeps a lid on prices, whereas a weaker Dollar can provide an upside catalyst.