$4000 at risk: Gold sellers refuse to give up amid hot US inflation, Mideast tensions
- Gold fades its rebound from seven-month lows of $4,024 in Asia on Thursday, following the recent brutal sell-off.
- The US Dollar eases despite continued Iranian attacks on US bases in the Gulf in response to the second wave of US strikes.
- Technically, Gold could stage a brief recovery before the next leg down resumes, as RSI stays oversold.
Gold pauses its recovery from seven-month lows of $4,024 in Wednesday’s Asian trading, after facing fresh offers above the $4,100 level. Gold sellers refuse to give up despite the continued hostilities in the Middle East.
Gold is not out of the woods yet
Amidst hot US Consumer Price Index (CPI) inflation and a second wave of strikes traded between the United States (US) and Iran, any recovery in Gold appears to be a dead cat bounce.
The US military began a fresh round of strikes overnight in Iran, as President Donald Trump vowed even more attacks if no peace deal is secured.
Not yielding to Trump’s pressure tactics, Iran’s Islamic Revolutionary Guard Corps (IRGC) said that it struck bases in Kuwait, Jordan and Bahrain in response to the latest US strikes.
Iran also announced the complete closure of the Strait of Hormuz and claimed that two vessels in the waterway had been targeted.
This came even after US Central Command (CENTCOM) announced its forces had completed their latest round of strikes on Iran.
In addition, the Israeli Home Front Command, the branch of the Israel Defense Forces responsible for civil defense, issued early warning after launches from Lebanon toward northern Israel.
The re-escalation of the conflict in the Middle East has put the ceasefire in limbo, capping the renewed downside in the US Dollar (USD) and the Gold price rebound.
Meanwhile, the US annual CPI increased 4.2% in May, at its quickest pace since April 2023, confirming a 25 basis points (bps) interest rate hike by the Federal Reserve (Fed) in December.
Markets shrugged off easing core inflation in the US, which came in at 0.2% month-over-month (MoM) in May. Hot US inflation data continued to weigh on the non-yielding Gold, especially after the US-Iran strikes pushed Oil prices higher and rekindled inflationary concerns.
Looking ahead, the US Producer Price Index (PPI) is eagerly awaited for fresh cues on the inflation scenario, which could provide hints on the Fed’s rate outlook.
Additionally, the Mideast situation will be monitored, with further escalation likely to drive Gold below the psychological $4,000 nark.
Gold’s technical setup on the daily chart also paints a bearish picture in the near-term, despite oversold conditions, with every bounce likely to be sold.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,062.56, extending a bearish phase as spot gold holds well below its key moving averages. The 21-day simple moving average (SMA) at $4,444.89 and the 200-day SMA at $4,446.35 form an immediate resistance band overhead, while the 50-day and 100-day SMAs, at $4,593.14 and $4,773.95 respectively, reinforce a broader topside cap and suggest rallies are likely to be sold. The Relative Strength Index (14) at 23.79 sits in oversold territory, hinting that downside momentum is stretched but not yet signaling a clear reversal.
Adding credence to the bearish potential, the 21-day SMA is on the verge of cutting the 200-day SMA from above, indicating an impending Bear Cross.
On the topside, initial resistance is clustered around the 21-day SMA at $4,444.89 and the 200-day SMA at $4,446.35; a daily close above this area would be needed to ease immediate selling pressure and allow a corrective recovery toward the 50-day SMA at $4,593.14. Further up, the 100-day SMA at $4,773.95 stands as a more distant barrier that maintains the broader bearish structure while price trades beneath it, leaving the path of least resistance still pointing lower unless these levels are reclaimed.
(The technical analysis of this story was written with the help of an AI tool.)
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.
