Gold Price Forecast: XAU/USD on slippery slope amid Oil-driven inflation risks, hawkish Fed bets
- Gold extends its range play near $5,200 early Thursday, lacking a clear directional impetus.
- The US Dollar rejoices haven demand as Iran strikes tankers and vessels near the vital Strait of Hormuz.
- Technically, Gold closed Tuesday above 61.8% Fibo level at $5,141; is more upside on the cards?
Gold is struggling below the $5,200 level early Thursday, facing headwinds from rising US Treasury bond yields and the US Dollar (USD) as the conflict in the Middle East escalates.
Gold fails to shine as a safe haven
The United States (US) and Iran war shows no signs of de-escalating, with Tehran intensifying its attacks on tankers and vessels in Iraqi waters and near the critical Strait of Hormuz.
Oil prices resume their uptrend on renewed fears about supply disruption, even after the US and the International Energy Agency (IEA) announced the release of emergency oil reserves to alleviate supply concerns and counter soaring energy prices, fuelled by the Middle East conflict.
The IEA agreed to release 400 million barrels of oil from its members’ strategic reserves, with the US’ share amounting to 172 million barrels.
Surging Oil prices aggravate concerns over rising inflationary pressures, lifting US Treasury bond yields across the curve alongside the US Dollar (USD).
Higher inflation expectations fuel bets that the US Federal Reserve (Fed) could keep interest rates on an extended pause this year, supporting the US Treasury bond yields and the USD at the expense of the non-yielding Gold.
The hawkish Fed expectations remained untouched even after the US Consumer Price Index (CPI) data released on Wednesday came in line with estimates for February. Note the inflation report doesn’t account for the oil shock tied to the Iran war, which rattled the outlook.
However, Gold has managed to find dip-buying interest at lower levels due to its inherent characteristic as a traditional store of value in times of global uncertainty and market unrest.
Looking ahead, updates on the Iran war and hawkish Fed expectations will continue to remain a drag on Gold should Oil prices stretch their upward trajectory.
Gold price technical analysis: Daily chart
The near-term bias is mildly bullish as price holds above the rising 21-, 50-, 100- and 200-day Simple Moving Averages (SMAs), keeping the broader uptrend intact despite recent consolidation. The latest close sits just above the 61.8% Fibonacci retracement at $5,141.05, measured from the $4,401.99 low to the $5,597.89 high, suggesting buyers defend this pullback zone. The Relative Strength Index (RSI) around 54 stays above the neutral 50 line, indicating positive but moderate momentum rather than a stretched rally.
Immediate support emerges at the 61.8% retracement at $5,141.05, with the 21-day SMA near $5,113 forming a secondary floor if a deeper dip unfolds. A break below there would expose the 50% retracement at $4,999.94 as the next downside level. On the upside, initial resistance aligns with the $5,263 area, just ahead of the recent swing region around $5,332, where prior supply interrupted advances. A daily close above $5,332 would reopen the path toward the $5,342 zone and, beyond that, the $5,598 high, reinforcing the prevailing bullish structure.
(The technical analysis of this story was written with the help of an AI tool.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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.
