Gold weakens as inflation concerns lift US bond yields and USD; downside remains cushioned

• Gold drifts lower for the second straight day on Thursday, though it lacks follow-through selling.

• Rising Oil prices revive inflation concerns, lifting US bond yields and the USD, and exerting pressure.

• A further escalation of Middle East tensions limits the downside for the safe-haven precious metal.

Gold (XAU/USD) trades with a negative bias for the second consecutive day on Thursday, though it lacks follow-through selling and stalls the intraday slide near the $5,125 area. A fresh leg up in Crude Oil prices threatens the inflation outlook and overshadows signs of moderating price growth in the US, dimming hopes for near-term interest rate cuts by the US Federal Reserve (Fed). This assists the US Dollar (USD) to prolong its uptrend for the third day and exerts pressure on the non-yielding yellow metal.

The US Bureau of Labor Statistics reported on Wednesday that the headline Consumer Price Index (CPI) rose 0.2% in February and the yearly rate held steady at 3.1%. Investors, however, remain worried about a surge in inflation amid a further escalation of the military conflict between Israel, US forces and Iran. In fact, Iran’s Islamic Revolutionary Guard Corps (IRGC) said that it launched a joint operation with Lebanon's Hezbollah against targets in Israel, Jordan, and Saudi Arabia. Moreover, reports that two oil tankers were attacked in the northern Persian Gulf near Iraq and Kuwait add to worries about supply disruptions from the Middle East, triggering a rally of over 6% in Crude Oil prices.

The International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned on Monday that a sustained 10% rise in Oil prices for a year would push global inflation by 40 basis points (bps). This might force the US Fed to delay cutting interest rates, which leads to a further rise in the US Treasury bond yields. This, in turn, continues to push the US Treasury bond yields higher, which remains supportive of the bid tone surrounding the USD and is seen driving flows away from the Gold. However, rising geopolitical tensions offer some support to the safe-haven XAU/USD, warranting some caution for aggressive bearish traders before positioning for any further depreciating move.

Traders now look forward to the release of the usual US Weekly Initial Jobless Claims, due later today, for some impetus ahead of the US Personal Consumption Expenditures (PCE) Price Index on Friday. The focus, however, will remain on developments surrounding the US-Israel-Iran war and Oil price dynamics, which would influence the central banks' policy outlook. Apart from this, the broader risk sentiment should contribute to infusing some volatility around the Gold price.

XAU/USD 4-hour chart

Gold bears need to wait for a break below channel support and 200-period SMA on H4

The XAU/USD pair holds above the upward-sloping 200-period Simple Moving Average (SMA) on the 4-hour chart, around $5,083, keeping the broader uptrend intact within the ascending channel. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram has eased from recent highs but remains in positive territory, suggesting momentum is cooling rather than reversing. Moreover, the Relative Strength Index (RSI) hovers just below 50, aligning with a modest upside tilt while signaling a lack of strong directional conviction.

Initial support emerges at the channel floor near $5,116, aligned just above the 200-period SMA, and a break below this area would expose deeper downside toward the $5,080 region. On the topside, immediate resistance stands at $5,200, with a sustained move above this barrier opening the way toward the channel resistance near $5,570. As long as the price holds above $5,116, dips are likely to attract buyers, while rejection below $5,200 would keep XAU/USD confined to a consolidative phase within the broader bullish channel.

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