Gold is deep in the red early Monday, having lost the $4,100 level, as tensions in the Middle East reignite, reversing Friday’s rebound.
Gold is set for more pain
Gold sellers retain total control at the start of a new week as the US Dollar (USD) rebounds on the latest upsurge in Oil prices and the revival of inflation fears, which double down on hawkish expectations around the US Federal Reserve (Fed).
This comes on the back of renewed hostilities in the Middle East and the Iranian closure of the Strait of Hormuz, following the United States’ (US) additional strikes against Iran on Sunday.
In response, Tehran targeted US facilities in states across the Gulf on Sunday and said it had again closed the vital Strait of Hormuz.
Inflation fears also increased after the Fed warned about it in its semi-annual Monetary Policy Report (MPR) released on Friday.
The Fed report stated: “US inflation “stepped up further this spring” as the evolving impact of tariffs, a war-related rise in energy costs, and the booming artificial intelligence buildout boosted price pressures that took root last year.”
Gold traders further remain on the back foot ahead of the US Consumer Price Index (CPI) data release and new Fed Chair Kevin Warsh’s first semi-annual testimony before Congress on Tuesday.
In the meantime, markets will closely follow the developments in the US-Iran war and the Oil price movement for fresh trading incentives.
Technically, downside risks remain intact for the bright metal amid a bearish daily setup, explained below.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,069.42, keeping a bearish near-term tone as it holds below the 21-day simple moving average (SMA) at $4,128.29 and the 50-day SMA at $4,343.88. The broader backdrop remains heavy with the 200-day SMA at $4,494.71 and the 100-day SMA at $4,583.07 still well above spot, while the Relative Strength Index (RSI) around 41.2 hints at weak but stabilizing downside momentum rather than outright oversold conditions.
On the topside, initial resistance comes at the 21-day SMA near $4,128, with further barriers at the 50-day SMA around $4,344 and then the 200-day SMA at $4,495 before the longer-term cap at the 100-day SMA close to $4,583. With no nearby moving-average support below price in this dataset, any recovery remains vulnerable while XAU/USD trades beneath this layered resistance stack, and a failure to reclaim the 21-day SMA would keep the risk skewed toward renewed downside probes.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
Core Personal Consumption Expenditures – Price Index (YoY)
The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures.” Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.
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.
Source: Original Article
