Gold (XAU/USD) price drifts lower by about 1.49% on Monday as the Greenback gains ground amid escalating hostilities in the Middle East, pushing energy prices higher and increasing the likelihood of higher interest rates globally. At the time of writing, XAU/USD trades at $4,163 after reaching a high of $4,217.
XAU/USD slides below $4,170 as rising energy prices reinforce inflation fears
West Texas Intermediate (WTI), the US crude benchmark, is rallying more than 2%, up at $93.69, spurred by Houthi attacks on Saudi Arabia, Iran strikes ships in Hormuz and exchange of fire between Russia and Ukraine, even though US President Donald Trump announced that both countries agreed to a ceasefire of attacks on energy installations.
News reports indicated that the US had accepted some of Iran’s seven conditions to end the war, though Tehran said that Hormuz would not be opened unless its demands were met.
This keeps US Treasury yields elevated, with the US 10-year Treasury note yield flat at 5.242%. At the same time, the US Dollar Index (DXY), which measures the performance of the buck against a basket of six currencies, is up 0.3% at 102.56.
Given the backdrop, money markets still price in a rate hike by the Federal Reserve (Fed), but not at the October meeting. Prime Terminal data show that investors see a 20% chance of a 0.25% increase in the Fed funds rate, but for December, the probability is nearly 90%.
Cleveland Fed President Beth Hammack commented that higher rates are needed as inflation broadens and that, within the FOMC, she has one of the highest projections for the neutral rate.
Traders' eyes shift to Fed speakers, led by Fed Chair Kevin Warsh, and to the release of US inflation figures, with the Consumer Price Index (CPI) expected on Wednesday, followed by the Producer Price Index (PPI) on Thursday.
XAU/USD technical analysis: Gold’s downtrend resumes below $4,100
Gold’s rally stalled near $4,200, with buyers unable to decisively hold spot prices above the figure; it retreated toward the day's low at $4,150 before settling at current prices.
Although bullion seems to have found its feet near $4,100, the market structure of lower highs and lower lows remains intact, indicating that $4,000 can be challenged in the foreseeable future.
Momentum has shifted mildly bullish, with the Relative Strength Index (RSI) rising but staying below its 50-neutral level.
For a bearish resumption, Gold needs to drop below the psychologically important $4,150 level. This opens the door for a move to $4,100, followed by the July 29 cycle low of $3,996, and $4,000 below.
On the other hand, if XAU/USD reclaims $4,200, a move towards the 100-day Simple Moving Average (SMA) at $4,256 is on the cards. Up next, the 50-day SMA at $4,337 emerges as the next ceiling level, ahead of $4,500. Once those levels are cleared, the next stop is the 200-day SMA at $4,528.
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