Gold Climbs as Easing Oil Prices Temper Inflation Fears

Key Moments

Geopolitics and Commodities

Gold (XAU/USD) extended its rebound on Wednesday, staging a second consecutive advance after a pronounced slide to four-month lows earlier in the week. Buyers stepped back in following the recent sharp decline, supported by signs that Oil’s earlier surge is easing as diplomatic efforts in the US-Iran conflict offer some cautious relief for markets.

At the time of writing, XAU/USD is trading around $4,553, up nearly 1.85% on the day. This move marks the precious metal’s second straight daily gain after a prior run of nine consecutive sessions in negative territory.

US-Iran Ceasefire Discussions in the Spotlight

On Tuesday, Israel’s Channel 12 reported that the United States had put forward a proposal for a one-month ceasefire to facilitate negotiations, alongside a 15-point plan delivered to Iran aimed at bringing the conflict to an end.

Mediators from Turkey, Egypt, and Pakistan are reportedly working to arrange a meeting between US and Iranian representatives. According to Axios, citing sources familiar with the matter, high-level peace discussions could potentially begin as soon as Thursday.

The reported proposal includes elements such as restrictions on Iran’s nuclear activities and commitments to keep the Strait of Hormuz open, in exchange for relief from sanctions.

Iran’s response has been dismissive. A senior military spokesperson stated that the US is “negotiating with itself,” and added, “someone like us will never come to terms with someone like you,” according to a video circulated by the state-run Fars News Agency. Fars, citing a source, also reported that Iran will not accept a ceasefire or enter into a process with a party it views as having violated prior agreements.

Oil Pullback Eases Immediate Inflation Concerns

The mixed nature of these diplomatic signals keeps the broader geopolitical backdrop uncertain. Nonetheless, the recent retreat in Oil prices is helping to alleviate some pressure on global inflation expectations, which in turn is supportive for Gold as a non-yielding asset.

Oil prices have slipped from their recent highs and are now moving near recent lows, though they remain above pre-conflict levels. This keeps investors vigilant regarding ongoing inflation risks despite the pullback.

West Texas Intermediate (WTI) Crude is trading around $87.70 following a sharp decline from levels near $100 earlier this week.

Absent a substantive breakthrough in US-Iran talks that triggers a more durable slide in Oil prices, the upside for Gold is likely to remain constrained. In the short term, volatility in the yellow metal is expected to persist as traders respond to shifting geopolitical headlines, changes in energy prices, and evolving views on the global interest rate outlook.

Technical Picture: Key Moving Averages in Play

From a technical standpoint, the near-term setup for XAU/USD has turned more constructive after the pair rebounded from the 200-day Simple Moving Average (SMA). Prices are now approaching the 100-day SMA, which is acting as initial resistance.

Daily momentum readings indicate that selling pressure is moderating, though not fully reversed. The Relative Strength Index (RSI) has climbed from oversold territory below 30 to around 37, signaling a modest improvement in momentum while still pointing to lingering downside bias.

The Moving Average Convergence Divergence (MACD) remains beneath both its signal line and the zero line. While negative momentum is beginning to shrink, the broader technical tone continues to lean in favor of sellers.

On the upside, a decisive move above the 100-day SMA near $4,619 would expose the 50-day SMA around $4,968, which sits close to the $5,000 psychological barrier and is viewed as a likely ceiling for additional gains.

On the downside, immediate support is located near Tuesday’s low around $4,306, followed by the 200-day SMA in the vicinity of $4,107.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for 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.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.