Gold prices fell 0.5% to around $4,545 an ounce on Tuesday, erasing earlier gains as US strikes on Iranian sites curbed optimism over a potential deal with Tehran. According to latest reports, US President Donald Trump said negotiations with Iran over an interim deal to extend their ceasefire and reopen the strait were 'proceeding nicely,' but the market's cautious stance reflects concerns about the deal's viability. Pakistan's military chief Asim Munir, the main interlocutor between the warring sides, told China an agreement was 'close to being reached,' though key sticking points remain unresolved, including the future of Iran's nuclear program. Iran's Tasnim news agency reported that the draft agreement could still collapse because of US objections to several provisions, including Tehran's demand that frozen assets be released.
Crude oil prices staged a sharp recovery, with Brent crude rising 2.3% to about $98.30 a barrel, bouncing back from Monday's slump of more than 7% after US strikes on Iranian sites. The attacks, described as defensive in nature by authorities, hit missile launch sites in Iran and boats trying to place mines, according to US Central Command. West Texas Intermediate crude fell 4.9% to $91.86 a barrel in the previous session. The rebound in oil prices after the strikes clouded the outlook for an interim deal to reopen the vital Strait of Hormuz, weighing on risk appetite and pressuring gold prices. For gold, a successful agreement could significantly alter the recent macro narrative that has pressured bullion since the start of the war, as rising oil prices fueled inflation concerns and reinforced expectations that major central banks, including the Federal Reserve, may need to raise borrowing costs.
Markets are currently pricing in nearly a 40% chance of a 25 basis point hike at the Fed's December meeting, according to CME FedWatch data, as reported by Reuters. However, if a deal is reached and the Strait of Hormuz fully reopens, further declines in oil prices could ease fears of an energy-driven inflation shock, potentially cooling expectations that the Fed may need to raise interest rates again. The US Dollar strengthened against all its Group-of-10 peers, while the Bloomberg Dollar Spot Index was little changed. Gold holds above the 200-day Simple Moving Average (SMA) at roughly $4,382, keeping a broader constructive backdrop, but remains capped by the 100-day SMA near $4,801, which limits immediate upside. Treasuries rallied across the curve in a catch-up move as cash trading resumed after a break, with the yield on 10-year Treasuries declining five basis points to 4.50%.
From a technical perspective, XAU/USD fell 0.8% to $4,535.94 an ounce, breaking below the 200-day Simple Moving Average (SMA) at roughly $4,382, which had previously provided support. The Relative Strength Index (RSI) around 46 on the daily chart leans slightly negative, while the Moving Average Convergence Divergence (MACD) indicator sits below zero with a mildly negative histogram reading, suggesting subdued momentum and a consolidative, range-bound bias. On the downside, initial support aligns with the nearby horizontal floor around $4,500, ahead of the more significant 200-day SMA cluster just above $4,380, where dip-buying interest could re-emerge. A sustained break above the 100-day SMA at approximately $4,801 would be needed to ease the current cap and open the way toward the psychological resistance band around $5,000. Bitcoin fell 0.7% to $76,704.17, while the market remains cautious given how previous hopes for a deal were dashed.
Central banks continue to provide important support for gold, with central banks adding 1,136 tonnes of gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council, representing the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their gold reserves as they aim to support their currencies in turbulent times. Gold's inverse correlation with the US Dollar and US Treasuries, combined with its role as a hedge against inflation and depreciating currencies, continues to provide fundamental support despite short-term volatility driven by geopolitical developments. Looking ahead, investors will focus on further headlines surrounding US-Iran negotiations and the upcoming US Personal Consumption Expenditure (PCE) inflation report on Thursday for additional direction.
