Gold is swinging between gains and losses at around $4,000 in Monday’s Asian trading, as the US-Iran conflict continues to flare up amid a relatively data-light US economic docket this week.
Gold sees downside risks intact
Gold continues to find a floor after booking the biggest weekly decline in six weeks last week. However, sellers keep lurking as the US Dollar (USD) is defending its appeal as a safe-haven amid intensifying conflict between the United States (US) and Iran.
Both sides entered their tenth day of escalation after the outbreak of renewed attacks that seem to have violated the ceasefire, reignited the Oil price rally and inflation concerns.
US Central Command (CENTCOM) said on X on Sunday: “The strikes will continue degrading Iranian military capabilities used to attack commercial vessels and civilian mariners transiting the Strait of Hormuz.” These attacks were launched after a US service member was killed in Iraq on Saturday and two American troops were killed in Jordan on Friday.
In retaliation, Iran’s Islamic Revolutionary Guard Corps (IRGC) said it targeted US aircraft in Jordan’s Aqaba airport with ballistic missiles, warning that “the Strait would remain unsafe as long as what it called US “aggression” in the region continued, adding that “this passage will not be safe for the transit of petrochemical products, nor even a single drop of oil and gas ‘”.
It also warned the US military to prepare for a “punitive operation”.
At the start of the week, WTI oil surges over 2%, heightening inflation fears and reaffirming bets on at least two US Federal Reserve (Fed) interest rate hikes this year, with the first one being as early as September.
This hawkish Fed narrative keeps the USD resilient across the board, demoralizing Gold buyers on dip-buying attempts. Gold generally thrives on lower interest rates.
Additionally, Fed policymakers continued to argue that a rate hike could be needed to curb inflationary pressures.
That being said, Gold remains at risk of renewed downside, despite directionless trading at the time of writing, as mounting geopolitical tensions keep incentivizing sellers.
Further, the technical setup on the daily chart continues to flash bearish signals, checking every rebound in Gold. That scenario is unlikely to change in the near term.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,012.40, extending a bearish stance as spot holds decisively beneath all its major moving averages. The 21-day simple moving average (SMA) at $4,070.64 is the nearest cap, followed by the 50-day SMA at $4,277.23 and the more distant 200-day and 100-day SMAs at $4,495.72 and $4,523.46, respectively, keeping the broader tone pressured. The Relative Strength Index (14) around 41 remains below the midline, hinting that downside momentum is still present but not stretched into oversold territory.
On the topside, immediate resistance is located at the 21-day SMA near $4,071, where a daily close above would be needed to ease immediate selling pressure and open the way toward the 50-day SMA around $4,277. Beyond there, the 200-day SMA at roughly $4,496 and the 100-day SMA just above $4,523 form a dense resistance band likely to limit any more pronounced recovery while price continues to trade below them. With no clear structural supports defined by the provided indicators, any fresh lows below the current area would leave gold vulnerable to further corrective losses until new demand levels emerge on the chart.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.