Gold Price Forecast: XAU/USD crumbles as Gulf war escalates; is a turnaround coming?
- Gold keeps falling as a new week sets in, hitting two-month lows below $4,350.
- The US Dollar gains traction with US Treasury yields as Middle East war spurs inflation fears and rate hike bets.
- Gold cracks the February 2 low of $4,402, but oversold RSI warrants caution for sellers.
Gold is down roughly 3% in Monday’s Asian trades, extending the previous week’s more than 10% loss as multiple support levels crumble.
Gold: Gulf war intensifies, boosts USD
Gold sellers appear unstoppable so far, as the bright metal continues to feel the heat from renewed buying in the US Dollar (USD) and the US Treasury bond yields as the Middle East war enters a new phase of escalation.
Gold keeps facing a double whammy, with reduced appeal as a safe-haven asset amid the USD’s dominance as the world’s reserve currency. A stronger Greenback makes dollar-priced bullion less attractive to holders of other currencies.
Meanwhile, a fresh escalation of the conflict rekindled concerns over energy supply disruption and inflationary risks, bolstering bets for global interest rate hikes. This, in turn, drives US Treasury bond yields higher, weighing negatively on the non-yielding Gold.
International Energy Agency (IEA) Chief Fatih Birol warned that the world is losing 11m barrels of oil per day, more than the 1973 and 1979 energy shocks combined.
Markets got rattled once again after the United States (US) and Iran traded escalating threats over the reopening of the Strait of Hormuz, targeting civilian and energy infrastructure, while Israel planned for "weeks" more fighting,
The Israel Defense Forces (IDF), the nation’s military, said in a social media post on Monday that it has begun a wide-scale wave of “extensive strikes” targeting Iranian infrastructure in Tehran.
In the opening trades on Monday, the Jerusalem Post reported, citing sources that the US is considering launching a ground military operation to seize the Iranian island of Kharg.
Should the tit-for-tat materialize from the US and Iran, a wave of broader market sell-off will kick in, exacerbating the pain in Gold. Such a scenario will likely prompt traders to liquidate their Gold positions to cover losses elsewhere.
However, Gold could find some respite if a technical rebound is initiated as the daily Relative Strength Index (RSI) remains in the oversold territory, well below the 30 level.
Gold price technical analysis: Daily chart
The near-term bias turns bearish as price extends a sharp decline below the 21-day and 50-day Simple Moving Averages (SMAs), signaling a break from the prior uptrend structure. The 21-day SMA has rolled over and now caps from above near $5,035, while the 50-day SMA weakens around $4,970, reinforcing downside pressure. The spot also trades well above the still-rising 100- and 200-day SMAs clustered around $4,610 and $4,095, framing this move as an aggressive correction within a broader uptrend. The Relative Strength Index (RSI) slides to 26, entering oversold territory and flagging stretched bearish momentum.
Initial resistance now stands at the recent breakdown area around $4,650, with stronger resistance at the 21-day SMA near $5,035, where any rebound would confront the short-term downshift in trend. A daily close above that level would expose the 50-day SMA near $4,970 as the next hurdle and would be needed to ease immediate downside pressure. On the downside, the current price zone near $4,360 is the first line of support, with further declines opening the way toward the psychological $4,300 area, where proximity to the rising 100-day SMA could attract dip-buying interest. If this region fails to hold, focus would turn toward the medium-term base implied by the 200-day SMA near $4,095, which marks a critical support zone for the broader bullish structure.
(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.
