Gold Price Forecast: XAU/USD set for more pain amid renewed Mideast hostilities
- Gold hangs close to three-month lows at $4,300 early Monday, following Friday’s 3.25% sell-off.
- The US Dollar Index holds above 100.00 amid renewed Mideast tensions and Fed rate hike bets.
- Gold closed below the key 200-day SMA last week; a test of the $4,250 area remains in sight.
Gold is licking its wounds, hanging close to three-month lows of $4,300 in Asia on Monday. The bright metal is consolidating before resuming Friday’s sell-off amid re-escalation in the Middle East and hawkish US Federal Reserve (Fed) expectations.
Gold looks vulnerable as sellers retain control
Despite a tepid bounce, Gold remains exposed to downside risks in light of the recent technical breakdown and as hostilities anew between Israel and Iran.
On Sunday, Israel launched strikes in the Beirut area for the first time since the US announced a ceasefire for Lebanon last week, which Hezbollah outrightly rejected.
Iran retaliated with strikes on Israel, citing the US’s continued naval blockade and Israel’s attack on Beirut as a violation of the ceasefire agreed between Tehran and Washington.
Since then, Israel and Iran have traded strikes, flaring up hostilities again in the Mideast, even though US President Donald Trump urged the Israeli Prime Minister Benjamin Netanyahu not to immediately retaliate over Iran’s earlier missile launches against Israel, per several media reports.
Additionally, there are reports that both Iran and Yemen are launching missiles toward Israel.
Fresh escalation in the Middle East war boosts oil prices and exacerbates pain in Gold, with the bullion already reeling from the pain induced by the blockbuster US Nonfarm Payrolls (NFP) report published on Friday.
The headline NFP increased by 172,000 jobs in May vs. 85,000 additional jobs expected, while the March and April payroll gains were revised up by 93,000. The Unemployment Rate held at 4.3% for a third consecutive month.
Markets are now pricing in about 70% probability that the Fed will hike interest rates by the end of this year, up from slightly over 50% pre-NFP release, according to the CME Group’s FedWatch Tool.
The US labor market resilience and the Oil price surge-led inflationary concerns serve as a perfect recipe for Gold’s heightened bearish momentum.
Looking ahead, Gold traders pay close attention to the Middle East developments and looming Japanese intervention risks as the USD/JPY pair re-approaches the 160.50 level, from where the official intervened in late April.
All in all, volatility is set to remain high in the bright metal going forward, with sellers likely to flex their muscles and ‘sell-the-rally’ trades to dominate.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,307.05, extending a bearish bias as spot remains entrenched beneath all its major moving averages. The 21-day simple moving average (SMA) around $4,526.82, the 50-day SMA near $4,623.59, the 100-day SMA at $4,792.32 and even the longer-term 200-day SMA at $4,436.55 all sit overhead, reinforcing a downside-skewed structure despite the Relative Strength Index (14) slipping toward the lower 30s and hinting at emerging oversold conditions rather than a confirmed reversal.
On the topside, initial resistance is defined by the 200-day SMA at $4,436.55, with the 21-day SMA at $4,526.82 and the 50-day SMA at $4,623.59 forming a subsequent cap, while the 100-day SMA higher up at $4,792.32 marks a more distant barrier. With no nearby moving-average support in place below spot, the metal remains vulnerable to further downside until buyers can at least reclaim the 200-day SMA and start easing the heavy technical tone.
(The technical analysis of this story was written with the help of an AI tool.)
(This story was corrected on June 8 at 4.05 GMT to say that "Gold is licking its wounds, hanging close to three-month lows of $4,300 in Asia on Monday," not Friday.)
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.
