Gold Holds Near Highs as Oil Drops on US-Iran Diplomacy

Key Moments

Gold Supported as Oil Pulls Back

Spot Gold is consolidating Tuesday in Asian trading around $3,945, retaining most of Monday’s advance. The move is occurring alongside softer oil prices, which are being weighed down by expectations that the United States and Iran may move toward a negotiated agreement. Even with the recent rebound, the metal is still trading close to its yearly trough at $3,870.23 recorded on Friday.

West Texas Intermediate (WTI) crude is trading near $95.00 at the time of writing, holding onto losses from the prior session. The contract has retreated notably from the five-month high of $104.03 reached on Friday.

From a macro perspective, a pullback in oil prices can help contain inflation expectations. Lower perceived inflation pressures may in turn reduce concerns that central banks will need to maintain elevated interest rates for a prolonged period. This backdrop tends to favor non-interest-bearing assets such as Gold.

Shifts in US-Iran Rhetoric Ease Oil Market Tensions

Market sentiment around the US-Iran relationship has improved after comments from multiple US officials suggested that President Donald Trump is prioritizing diplomacy over renewed military action.

Over the weekend, US Secretary of State Marco Rubio stated that Washington has not decided to resume strikes on Tehran, adding that President Trump is inclined toward a diplomatic outcome.

On Monday, US Vice President JD Vance said that he just spoke to President Trump about talks with Iran and said, “the president and I both feel pretty good about the prospects for potentially coming to a negotiated settlement,” The Associated Press (AP) reported.

At the same time, Iran’s Islamic Revolutionary Guard Corps (IRGC) reported the interception and downing of two US MQM-170 drones south of Qeshm Island in the Strait of Hormuz, as well as the destruction of the 55th US MQ-9 drone east of the Hormuz Strait. Despite the incident, oil prices have shown little reaction, suggesting limited immediate market impact from these developments.

Key Catalysts Ahead: US Midterms and Labor Data

In the days ahead, Gold traders will be closely watching the US Midterm elections as well as several US labor-market releases, with particular attention on the September Nonfarm Payrolls report.

ING’s Chris Turner flags the US midterm elections as the key event risk for FX this week, noting that betting markets now give the Democrats a “70-72% chance of taking both the House and the Senate.” He argues that a Democrat clean sweep would likely “lead to gridlock on the debt ceiling, a prolonged government shutdown next year and could encourage President Trump to pursue an even more activist foreign policy agenda.”

Later in the session, investors will monitor the US JOLTS Job Openings data for September, scheduled for release at 15:00 GMT. Consensus expectations point to 7.13 million new job postings, modestly above the 7.097 million reported in August.

Technical Overview: XAU/USD Remains Under Near-Term Pressure

On the daily chart, XAU/USD trades at $3,935.94, maintaining a bearish short-term tone as the price remains below the 20-period Exponential Moving Average (EMA) at $4,063.86. The inability to reclaim this moving average suggests that upside attempts are still vulnerable and that sellers retain the upper hand.

The 14-period Relative Strength Index (RSI) stands at 36.24, just above oversold territory. This positioning points to ongoing, though not extreme, downside pressure and does not yet signal a clear exhaustion of the recent decline.

On the upside, the 20-period EMA at $4,063.86 is the first significant resistance. A daily close above that level would be needed to ease the immediate bearish bias and potentially allow a more durable recovery phase. On the downside, the yearly low at $3,870.23 is the key support. A convincing move below this floor would expose the next downside areas at $3,800 and then $3,700.

Background: Gold’s Role and Market Dynamics

Gold has played a key role in human’s 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.

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.

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.

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.