Gold Price Forecast: XAU/USD is at a critical juncture as Middle East conflict widens

Gold is snapping its recent recovery, struggling above $4,100 early Thursday, as both fundamental and technical factors warrant caution for buyers.  

Gold reverses from two-week highs

Gold is extending its pullback from two-week highs of $4,166 reached on Wednesday, even as the US Dollar (USD) remains on the backfoot.

Looming Japanese intervention risks keep Greenback traders cautious amid potential downside risk to the USD/JPY pair, which could have a ‘rub-off’ effect on the buck.

Additionally, the earnings reports from the American tech titans, Alphabet and Tesla, showed robust spending plans for Artificial Intelligence (AI) infrastructure, lifting chipmakers and major Asian indices. The cautious optimism is also rendering negative for the safe-haven US Dollar.  

However, expectations of sooner (than later) interest rate hikes by the US Federal Reserve (Fed) are back on the table, courtesy of the widening Middle East conflict-led surging Oil prices and increasing inflation fears, which continue to limit the USD downside and reinforce bearish pressure on non-yielding assets such as Gold.

Therefore, the latest leg down is sponsored by that narrative, especially after the US launched a new wave of strikes on Iran and Yemen's Houthis targeted oil tankers in the Red Sea, widening the scope of a conflict that has once again rattled global markets.

Late Wednesday, Iran’s Foreign Minister Abbas Araghchi warned that Tehran would respond in kind to any attack on its infrastructure after US President Donald Trump threatened to bomb a bridge or power plant for every ship targeted in the Strait of Hormuz.

Looking ahead, Gold remains in the eye of the storm amid escalating tensions in the Middle East and ahead of the European Central Bank (ECB) monetary policy decision.

Although the ECB is widely anticipated to hold key rates this Thursday, any signs of a possibility of a September rate hike could ramp up hawkish sentiment around the central bank. This could further contribute to the retracement in Gold.

Meanwhile, Gold’s daily technical setup continues to caution buyers as they keenly await confirmation of the impending Bear Cross while momentum stays neutral.

Gold price technical analysis: Daily chart

In the daily chart, XAU/USD trades at $4,117.19, holding below the 50-day simple moving average (SMA) at $4,242.58 and well under the 100-day and 200-day SMAs clustered around $4,491, which keeps the near-term bias bearish despite the latest rebound. The metal remains above the 21-day SMA at $4,071.54, suggesting some short-term demand, while the Relative Strength Index (14) near 49 points to neutral momentum rather than a decisive recovery.

Additionally, keeping buyers defensive, the 100-day SMA has crossed the 200-day SMA from above, but a confirmation on a daily candlestick closing basis is awaited to confirm a Bear Cross.

On the topside, initial resistance is seen at the 50-day SMA at $4,242.58, followed by the 100-day SMA at $4,491.02 and the 200-day SMA at $4,495.96, where a dense supply zone could cap further gains. On the downside, immediate support emerges at the 21-day SMA at $4,071.54; a daily close below this floor would likely expose the bearish trend to renewed pressure toward lower levels not yet defined by the current moving-average structure.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Gold upside capped as energy and Fed expectations stay in focus

Analysts at ING highlight that gold is "likely to remain sensitive to developments in energy markets and expectations for US monetary policy," keeping the metal vulnerable to shifts in both oil prices and the Fed outlook. They add that silver "could continue to outperform if strength in industrial metals persists alongside safe-haven demand," suggesting the white metal may benefit from both industrial and defensive flows.

Echoing the cautious tone, OCBC notes that "near term, price action may remain two-way," but stresses that "a more sustained recovery likely requires oil prices to back off, some easing in real yields and Fed tightening expectations." Until those conditions materialise, OCBC warns that "upside may remain capped" for gold.