Gold Price Forecast: XAU/USD faces pressure near upper Rising Channel boundary around $5,400
- Gold price slumps to near $5,180 even as the war in the Middle East continues to persist.
- Tehran increases military activities near the Strait of Hormuz as part of retaliation against the US.
- Signs of rising US factory-level inflation have forced traders to pare dovish Fed bets.
Gold price (XAU/USD) trades 2.5% lower to near $5,180 during the European trading session on Tuesday. The yellow metal corrects after rising for four straight trading days. On Monday, the precious metal gained sharply as investors shifted to the safe-haven fleet amid the war in the Middle East.
Over the weekend, the United States (US) and Israel, in a joint operation, launched a series of aerial attacks against Iran, in which they killed a number of its top leaders, including Supreme Leader Ayatollah Ali Khamenei.
In retaliation, Tehran has closed the Strait of Hormuz and struck Israeli territory and various US military bases in the Middle East. Earlier in the day, Tehran attacked the US Embassy in Riyadh by launching a number of drones.
Theoretically, the Gold price performs strongly in a heightened geopolitical environment.
Meanwhile, easing dovish Federal Reserve (Fed) prospects for the June policy meeting have also weighed on the Gold price. The CME FedWatch tool shows that the probability of the Fed holding interest rates steady in the June policy meeting has increased to 53.5% from 42.7% seen on Friday.
Traders receded Fed dovish bets after the release of the US ISM Manufacturing Prices Paid data for February on Monday, a key measure for factory-level inflation. The Manufacturing Prices Paid – which tracks changes in prices paid for inputs such as labor and raw materials – soared to 70.5 against estimates of 59.5 and the previous reading of 59.0.
Gold four-hour chart
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XAU/USD slides below $5,200 at the press time. The near-term bias turns neutral with a downside tilt after price retreated from the upper boundary of the Rising Channel pattern near $5,400, and slipped back toward the 20-period Exponential Moving Average (EMA), which trades around $5,280.
The 14-period Relative Strength Index (RSI) has dropped from above 80 to around 49, confirming fading bullish momentum and validating the loss of upside conviction.
Initial resistance emerges at the lower boundary of the Rising Channel formation near $5,065. A sustained break below the same would open the path toward the psychological level of $5,000. On the upside, the upward boundary of the Rising Channel pattern remains a key barrier above $5,400
(The technical analysis of this story was written with the help of an AI tool.)
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.
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