$4,200: Gold sell-off resumes as this critical support cracks; where next?
- Gold kicks off the Nonfarm Payrolls week negatively, threatening the $4,200 level.
- US Dollar sits at three-month highs on renewed US-Iran risks and Fed rate-hike bets.
- Gold teases lower boundary of the falling wedge near $4,200 amid bearish daily RSI.
Gold is falling hard at the start of the US Nonfarm Payrolls (NFP) week on Monday, down roughly 2% as it challenges a critical support near the $4,200 level.
Gold at risk amid hawkish Fed bets, Iran woes
Gold has snapped the previous rebound, crushing the earlier danger zone around $4,240, as renewed geopolitical tensions between the United States (US) and Iran prop up Oil prices, revive inflation fears, and support the US Dollar (USD) alongside US Treasury bond yields.
Over the weekend, Iran said it was awaiting a definitive US response to a seven-day proposal to reopen the strait and other demands it has put on the table, and that it won’t soften its conditions.
Axios reported that US President Donald Trump is said to resume talks with Iran this week, despite rejecting the latest Iranian proposal to reopen the Strait of Hormuz.
Trump also said that he believes the war with Iran will be won “very soon,” adding that additional military strikes before the midterm elections are possible, per Fox News.
Aggravating Middle East tensions, Saudi Arabia’s capital, Riyadh, came under attack from Houthi militants in Yemen on Saturday. These geopolitical risks help keep oil prices elevated and inflation risks alive.
This, combined with increased bets on an October US Federal Reserve (Fed) interest rate hike, provides additional legs to the USD uptrend, spelling doom for the USD-sensitive and yieldless Gold.
Markets are pricing in a 66% chance of a rate hike in October, according to CME Group’s FedWatch Tool.
Looking ahead, potential US-Iran talks and Middle East developments will remain the main driver for Gold amid a data-light US economic calendar. Gold traders also gear up for the US labor data this week, which will start trickling in from Tuesday, culminating with the all-important NFP report Friday.
Speeches from Fed policymakers will also be closely scrutinized after the Fed’s hawkish outlook.
All in all, risks appear skewed to the downside for Gold amid re-ignition of Iran risks and increased hawkish Fed expectations.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,200.00, extending its corrective phase with a clear bearish bias as it holds below the 100-day simple moving average (SMA) at $4,299.28 and the 50-day SMA at $4,321.41. The price also remains capped beneath the 21-day SMA at $4,344.16 and the longer-term 200-day SMA at $4,540.68, reinforcing a downside-skewed structure, while the Relative Strength Index (14) at 38.82 hints at weakening momentum rather than outright oversold conditions.
On the topside, initial resistance emerges at the 100-day SMA near $4,299.28, followed by the 50-day SMA at $4,321.41 and the descending trend-line break level around $4,327.36, with the 21-day SMA at $4,344.16 forming a dense supply zone before the prior trend-line start at $4,519.20 and the 200-day SMA at $4,540.68. On the downside, the immediate focus sits on the psychological $4,200.00 area, the lower boundary of the falling wedge, with the underlying upward support trend line marked by $3,998.89 and $3,990.07 likely to act as a structural floor if selling pressure deepens.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
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.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
