Gold is nursing heavy losses incurred on Thursday, keeping its range near $4,050 early Friday. Despite the recent retracement, Gold remains on track to register its first weekly gain in three.   

Gold could see further correction

Gold witnessed a steep 2% corrective downside on Thursday, after having reached two-week highs of $4,166 earlier in the week.

The sharp Gold price pullback could be attributed to heightened inflation concerns and the resultant increase in hawkish expectations around the US Federal Reserve’s (Fed) interest rate hike outlook, following the widening of the US-Iran war in the Middle East that sent Oil prices back to six-week highs or toward $100 per barrel.

Fears over two of the world’s busiest shipping corridors being under threat in the same month are driving the black gold through the roof.

According to TD Securities, the broader macro backdrop is still not supportive of a sustained build-up in bullion positions, with the bank arguing that “there are no fundamental reasons to think that the U.S. rate and FX environment will be conducive to increasing long gold exposure any time soon.” The firm cautions that geopolitical tensions are also feeding into this dynamic, noting that “it is likely that the Middle East war-driven oil price increases will continue to increase the probability of a Fed rate hike,” a combination that, in their view, leaves the near-term risk-reward for additional long gold exposure looking increasingly constrained.

Meanwhile, the US military carried out a 13th consecutive night of strikes on Iran, targeting drone facilities, coastal surveillance sites, etc.

It came after US President Donald Trump said he was close to deciding whether to launch “a massive attack” against Iran, on a scale larger than strikes already witnessed in the past five months.

Trump also warned earlier of “major military punishment” against Iran and the Houthis, after the Iran-backed Yemeni militia attacked two Saudi Arabian oil tankers in the Red Sea. 

The focus now turns to the global preliminary business PMI data due later in the day, which could underscore the impact of the war on the manufacturing and services sectors worldwide. 

Any disappointment in the PMI readings could revive the US Dollar’s (USD) appeal as a haven, weighing further on Gold.

Gold traders could also resort to profit-taking and position readjustment after the recent recovery and ahead of the July Fed interest rate decision due next Wednesday.

However, if trade tensions intensify, the Greenback could take further beating, limiting the corrective decline in Gold.

The US announced on Thursday that it is imposing new tariffs on around 60 trading partners, ranging from 10% to 12.5%, as a temporary 10% tax on foreign goods introduced earlier this year expires.

All in all, Gold will remain at the mercy of the USD dynamics and Oil price action, as markets remain wary over Trump’s threat and escalating Middle East tensions heading into the weekend.

At the same time, Gold’s daily technical setup reinforced the bearish bias, following the confirmation of the Bear Cross while momentum turned downbeat again.

Gold price technical analysis: Daily chart

In the daily chart, XAU/USD trades around $4,030 and remains under clear pressure, capped below the 21-day simple moving average (SMA) at $4,068.50 and the 50-day SMA at $4,231.04. The pair sits well beneath the longer-term 100-day SMA at $4,479.88 and 200-day SMA at $4,494.74, which reinforces a bearish near-term bias. The Relative Strength Index (14) around 44 stays in neutral-to-soft territory, hinting that downside momentum is present but not yet overstretched.

On the topside, initial resistance is seen at the 21-day SMA near $4,068.50, followed by a more significant barrier at the 50-day SMA around $4,231.04. Above there, the 100-day SMA at $4,479.88 and the 200-day SMA at $4,494.74 define a dense resistance zone that would need to be reclaimed to ease the broader bearish tone. With no clear moving-average support levels below the current price in this dataset, any fresh decline would likely seek direction from emerging horizontal or Fibonacci floors rather than established trend supports.

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