Gold: Strait of Hormuz Blockade Lends Support to Yellow Metal

Gold remains firm. With tensions rising in the Persian Gulf, the XAU/USD pair is trading well above the large base built throughout the middle of the year, in the 4000.00 region. This is not a euphoric move, it is more of a calm migration of money into an asset that swings less when the world becomes unpredictable.

What is supporting the price?

Basically, the lack of a way out of the standoff between the United States and Iran. Neither side has shown any sign of backing down and negotiations are practically at a standstill. Meanwhile, the Strait of Hormuz, the world’s main maritime route for transporting oil and gas, remains blocked, even amid conflicting statements coming out of Tehran and Washington. The numbers help measure the severity: according to the maritime traffic monitoring service Kpler, no vessel crossed the region on Sunday, something that had not happened since the peak of the crisis in May.

Translating what this means in practice: the risk of a global energy crisis has increased, and when this kind of risk rises, investors look for somewhere to protect themselves. Gold tends to be the first address.

Relevant Factors:

The People’s Bank of China bought about 20.0 metric tons of gold in July, according to Reuters. It is the country’s largest monthly purchase in four years. As a result, China’s reserves of the metal reached 76.0 million troy ounces.

Analysts read this as several countries using gold as protection against global inflation, a concern that should remain on the table until navigation through the Strait of Hormuz returns to normal.

What weighs against it

Not everything pushes gold higher. The United States debt market is offering high interest rates, and this competes directly with the metal, which pays no yield to whoever holds it.

The US 10-year Treasury note, the most closely watched in the world, is paying 4.683%. This level is near the peak recorded at the end of July, around 4.750%. On the Chicago Mercantile Exchange (CME Group), the volume traded on August 17 was 141,700 positions in futures contracts and 47,200 in options.

These volumes came in below the July average. Futures changed little on the week, while options fell sharply. It is worth explaining what this suggests: options are typically used as insurance against price reversals. When demand for this insurance decreases, it is a sign that investors are more confident the current trend will hold.

Technical Analysis

On the daily chart, the price has been correcting, but it remains comfortably above the bearish range that dominated the market before, which keeps the scenario constructive.

The indicators continue to point to buying. The short-term moving averages, which show where the price is heading now, remain above the longer-term ones, which show the underlying direction. And the indicator that measures the strength of the move remains in positive territory, though it is already showing smaller bars, which is typical of a pause to catch its breath within an uptrend.

Resistances: 4420.00 and 4660.00.
Supports: 4230.00 and 3970.00.