Gold is back in the red early Monday, looking to test the $4,400 level after failing to resist above the $4,500 mark yet again.
Gold set for more pain as Gulf war flares up
Gold sellers fight back control as a new week kicks in, reversing half of Friday’s rebound, as the US Dollar (USD) and Oil price strengthen their bullish momentum amid a fresh escalation in the Middle East war.
Markets were already worried about the energy shock-driven higher inflation prospects amid the blockage of the Strait of Hormuz. Now, with Yemen’s Iran-backed militant group, Houthis, entering the Middle East war, risks to the Red Sea global trade have intensified.
Houthis launched their first attacks on Israel over the weekend since the war began, raising concerns the conflict could translate into a full-blown regional war.
They also warned that the attacks would continue until aggression ceased on “all fronts”, indicating against Iran and its proxies such as Hezbollah.
Meanwhile, the Israel Defense Forces stated early Monday that they intercepted two unmanned aerial vehicles launched from Yemen.
Additionally, Iran is prepared for a military ground operation by the United States (US) in the coming days as US President Donald Trump continues his threats to seize the Kharg Island.
Citing US officials, the Wall Street Journal (WSJ) reported on Monday that Trump is weighing military operation to extract Iran’s uranium.
Against widening Middle East conflict and increased Federal Reserve (Fed) expectations, the USD is expected to remain firm against its major currency rivals, boding ill for the USD-denominated Gold.
Looking ahead, Gold could come under renewed selling pressure if the Houthis ramp up attacks on Israel and face Israel’s revenge response. Israel’s Prime Minister Benjamin Netanyahu announced an expansion of Israel’s invasion of southern Lebanon late Sunday as his forces target Hezbollah.
Gold price technical analysis: Daily chart
The near-term bias is mildly bearish as price remains below the 100-day Simple Moving Average (SMA) near $4,633, while still holding above the $4,400 level. This configuration shows short-term sellers pressing within a broader uptrend defined by the steadily advancing 100- and 200-day SMAs. The Relative Strength Index (RSI) at 34.76 stays below the 50 mark and away from oversold territory, indicating persistent but not exhausted bearish momentum.
Immediate resistance emerges at the $4,500 round number, followed by the 100-day SMA around $4,630, where a daily close above the latter would soften the bearish tone and open the way toward the $4,700 area. On the downside, initial support sits near the previous low at $4,375, ahead of the rising 200-day SMA around $4,122.
As long as price trades beneath the short-term averages and RSI holds below 50, rallies are vulnerable to selling into these resistance levels. Adding credence to the bearish outlook, the 21-day and 50-day SMAs Bear Cross confirmed on March 25 remains in play.
(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.
