Gold Slides as Inflation Fears Boost Strong Dollar

Key Moments

Geopolitical Tensions Fail to Lift Gold Prices

Gold (XAU/USD) declined to a new two-month low on Thursday, even as tensions in the Middle East intensified and investors reassessed geopolitical risks. The metal last changed hands at $4,386, after earlier falling to an intraday trough of $4,366.

Market participants remained focused on the ongoing conflict between the United States and Iran, as renewed attacks fueled uncertainty about how soon the confrontation could ease. US forces conducted a second “defensive” strike this week targeting Iranian military infrastructure. In turn, Iran’s Islamic Revolutionary Guard Corps (IRGC) stated that it struck a US airbase in the Gulf region and cautioned that “more decisive” measures could follow if what it called US “aggression” persists, according to state media.

Despite the heightened tensions, both sides continue to engage in talks. However, progress appears constrained by disagreements over Iran’s nuclear activities and control of the Strait of Hormuz. Tehran is also pressing for sanctions relief and access to frozen assets. US President Donald Trump told PBS News on Wednesday that Iran would not receive sanctions relief in exchange for giving up highly enriched uranium.

Stronger Dollar and Inflation Worries Pressure the Metal

In this environment, investors have increasingly opted for the US Dollar as their preferred safe-haven asset, at the expense of Gold. The US Dollar Index (DXY) – which tracks the performance of the Greenback against six major counterparts – is trading around 99.35, after having touched a seven-week peak of 99.54 earlier in the session.

Gold has struggled since the onset of the war in late February, with attention shifting toward inflation risks driven by higher Oil prices. Rising energy costs are adding to price pressures, reinforcing expectations that major central banks, including the Federal Reserve (Fed), may need to keep interest rates elevated for an extended period or potentially raise them further.

US Treasury yields have remained firm against this backdrop. The benchmark 10-year yield has rebounded after briefly retreating from the 16-month high it reached earlier in the month, reinforcing the headwinds facing the non-yielding metal.

Markets Eye PCE Inflation Data and Fed Path

Traders are now focused on the upcoming US Personal Consumption Expenditures (PCE) Price Index release for guidance on the Fed’s policy trajectory. Consensus forecasts point to a 3.3% year-on-year increase in the core PCE Price Index for April, up from 3.2% in March.

According to the CME FedWatch Tool, current market pricing reflects roughly a 40% probability of a 25-basis-point rate hike at the Fed’s December meeting.

Fed Vice Chair Philip Jefferson said on Thursday that rising energy prices are “a downside risk to growth” and “a potential inflation driver.” He added that the Fed remains “firmly committed to restoring inflation to 2%” and noted that recent US economic activity “remains robust.”

Technical Picture: Sellers Maintain the Upper Hand

XAU/USD retains a bearish tone, with price action slipping marginally below the 200-day Simple Moving Average (SMA) at $4,398 and staying capped beneath the 50-day and 100-day SMAs.

The Relative Strength Index (RSI) stands at 34 on the daily chart, hovering just above oversold territory. The Moving Average Convergence Divergence (MACD) remains in negative territory with a subdued histogram. Together, these indicators point to ongoing downside pressure.

On the upside, the 200-day SMA around $4,398 is the first technical barrier, followed by the 50-day SMA near $4,628 and then the 100-day SMA around $4,800. These clustered resistance levels are currently limiting recovery attempts.

On the downside, the next key support is seen at the horizontal level of $4,100. A sustained move below that area would open the door to further weakness within the ongoing corrective decline.