Gold rebounds toward $4,000 as Iran peace hopes sink Oil, US Dollar

Gold rallies over 2% to $3,954 as US Dollar weakness accelerates.
US 10-year Treasury yields drop nearly six basis points to 4.871%.
December Fed hike odds hold near 75% amid stronger US manufacturing.

Gold (XAU/USD) rebounds and gains over 2% on Monday as crude prices drift lower, dragging the US Dollar (USD) lower due to its positive correlation, as elevated energy prices exert pressure on inflation. XAU/USD trades at $3,954 at the time of writing.

XAU/USD surges as falling energy prices and Treasury yields revive bullion demand

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Oil prices are collapsing amid growing speculation for a diplomatic exit from the US-Iran conflict. Reports say that Iran’s supreme leader granted “certain authorities” regarding peace talks to President Masoud Pezeshkian. News that US President Donald Trump wants a peaceful resolution improved risk appetite, a headwind for the Greenback, which usually fares well amid high interest-rate scenarios and on its safe-haven appeal.

The US Dollar Index (DXY), which measures the buck’s performance against six currencies, is down 0.27% at 101.68. US Treasury yields also edged lower, with the 10-year yield losing nearly 6 basis points to 4.871%.

In the US, the Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) improved from 54.5 to 55.5 in October, exceeding forecasts of 54.6. The report showed that the Prices Paid sub-component fell from 77.9 to 75.2, while an employment measure cooled during the month.

Even though business activity reached its second-highest reading in more than four years, an indication that the economy is expanding solidly, traders trimmed hawkish bets from a week ago. Money markets see a 75% chance of a rate hike in December, down from 80% a week ago, according to the CME FedWatch Tool.

What is on the US calendar

Traders' focus is on Tuesday’s US midterm elections, Factory Orders, the Job Openings and Labor Turnover Survey (JOLTS) and speeches by Federal Reserve officials.

XAU/USD technical outlook: Recovery incomplete, but reclaims $3,900

Despite bouncing off yearly lows, Gold’s trend remains up, even though the Relative Strength Index (RSI) shows buyers are gaining momentum. The XAU/USD pair bounced from below $3,900 to current spot prices, but it remains below the latest cycle low at $3,975, the October 23 low of the day (LOD), which has turned into resistance.

To complete a bullish reversal, buyers must surpass the October 23 LOD followed by the $4,000 psychological level. A breach of the latter will see Gold face a key resistance trendline near $4,050-$4,070, ahead of $4,100.

For a bearish continuation, Gold needs to fall below $3,900. This will expose the October 30 yearly low of $3,870, followed by the April 22, 2025, daily high, turned into support at $3,500.

Gold FAQs

Why do people invest in Gold?

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.

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.

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