Gold prices (XAUUSD) face headwinds after a stellar run, pressured by easing geopolitical tensions and a hawkish Federal Reserve. The recent missile strike between Israel and Iran, initially boosting safe-haven demand for gold, failed to escalate into a wider conflict. This has dampened investor appetite for the precious metal.
Furthermore, the Fed’s commitment to prolonged interest rate hikes weighs on gold’s allure. Higher-for-longer interest rates elevate the opportunity cost of holding non-yielding assets like gold. Additionally, investors have pushed back expectations of a Fed rate cut this year, reducing support for gold.
Despite these bearish signals, some analysts believe a complete reversal is unlikely. Concerns about slowing global growth and potential future rate cuts by major central banks later in the year could reignite gold’s appeal as a hedge against inflation and economic uncertainty.
Technical Analysis
The 4-hour shows that gold is currently trading at $2,359.12/ounce as the non-yielding bullion continues to slide lower. Gold has enjoyed a robust bullish run, which has seen price action close the previous five weeks in the green; however, the recent subsiding fears of wider Middle East conflict have helped the precious yellow metal below the 20-SMA (green line) and 50-SMA (blue line), but the price action still remains above the upward-sloping 100-SMA (orange line).
With the downward-sloping RSI (43.47) trading below the 50.00 level, a continued push lower could offer short-term trading opportunities towards the $2,330.71/ounce support level. A sustained push below the initial support would likely bring the $2,266.02/ounce and $2,194.97/ounce within the bears’ clutches in the short term.
However, the all-time high of $2,431.47/ounce could come into play in the session should the price action find itself above 20-SMA. A successful break above the initial resistance on significant volume could strengthen the bullish momentum, leaving the 23.60% Fibonacci extension level ($2,470.16/ounce) and 38.20% Fibonacci extension level ($2,494.09/ounce) firmly in play.
Summary
The easing of geopolitical tensions and a potentially hawkish Fed are putting downward pressure on gold prices. The technical picture on the 4-hour timeframe suggests a potential short-term correction, with initial support at $2,330.71/ounce. However, a break above the 20-SMA could signal a bullish resurgence, targeting the all-time high and Fibonacci extension levels.
Sources: TradingView, Trading Economics, MT Newswire, Dow Jones Newswire, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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