Gold benefits from lower Oil prices, but other risks remain

Gold starts the week near a one-week high of around 4,345 USD per troy ounce. Last week marked the precious metal’s first weekly gain in a month. Falling oil prices are supporting gold, easing concerns about persistent inflationary pressures.

At the same time, a strong US dollar is limiting gold’s upside potential. The US currency continues to draw support from the Federal Reserve’s decision to raise interest rates by 25 basis points, with the central bank making clear that further increases remain possible in the coming months.

Markets currently estimate the probability of another rate hike as early as next month at almost 60%. Another signal of global monetary tightening came from the Bank of Japan’s decision to raise rates to a 31-year high, with the central bank not ruling out further increases.

Meanwhile, Brent prices are falling. Concerns about supply disruptions from Saudi Arabia have eased, and this has so far outweighed the risk of a broader escalation in the Middle East. For gold, this combination – lower oil prices but still-hawkish central banks – creates a mixed backdrop.

Technical analysis

On the H4 XAU/USD chart, the market has completed an upward move towards 4,399 USD. A consolidation range is currently forming below this level.

A break below the lower boundary could open the way for the bearish trend to continue towards 4,215 USD. An upside breakout, however, could open the way for a further rise towards 4,495 USD.

The MACD indicator supports continued short-term upward momentum. Its signal line remains above zero and is pointing firmly upwards.

On the H1 XAU/USD chart, the market broke above 4,333 USD and moved higher to 4,399 USD. A consolidation range has now largely formed around 4,365 USD.

A downside breakout could open the way for a decline towards 4,321 USD, while an upside breakout could open the way for a further rise towards 4,495 USD.

The Stochastic oscillator supports the short-term bearish scenario. Its signal line remains below 50 and appears poised to turn lower towards 20.

Conclusion

Gold started the week near a one-week high, supported by falling oil prices that have eased inflation concerns. However, the precious metal’s upside remains limited by a strong US dollar, which continues to benefit from the Fed’s recent rate hike and the prospect of further tightening. The Bank of Japan’s decision to raise rates to a 31-year high adds to the global tightening narrative.

With oil prices falling as concerns about Saudi supply disruptions ease, but central banks maintaining hawkish stances, gold faces a mixed backdrop. From a technical perspective, a downside breakout could expose 4,321 USD in the short term, with the broader bearish target at 4,215 USD. Conversely, an upside breakout could open the way for a further rise towards 4,495 USD.