10.07.202609:12 Forex Analysis & Reviews: Gold Stabilizes

Gold has stabilized around $4,120 per ounce today. Meanwhile, traders are assessing the implications of the renewed hostilities in the Middle East and the prospects of a rate hike by the Federal Reserve to combat inflation. It is noteworthy that even amid the exchange of strikes this week and the reinstatement of US oil sanctions against Iran, negotiations between the US and Iran are ongoing. But this is according to an American official.

Clearly, the confrontations have put the temporary peace agreement signed last month at risk and have heightened uncertainty regarding the safe passage of energy supplies and other goods through the Strait of Hormuz. The logic for gold remains unchanged and is already well-known. The escalation of hostilities increases the likelihood that the Fed will keep rates high for longer to address the inflationary effects of rising energy costs. The minutes from the Fed's June meeting published this week indicated that some members saw grounds for a rate hike, although the rate was ultimately left unchanged. A tighter monetary policy is traditionally negative for gold, which does not yield interest. A strong dollar can also create significant resistance to rising gold prices.

An additional signal affecting gold was New York Fed President John Williams's statement that he is most concerned about demand driven by artificial intelligence among the factors influencing US inflation. If this pressure persists, he said, it could force the central bank to raise rates. This represents a significant shift in focus. Recently, attention was primarily on energy and tariff pressures, but now one of the Fed's most influential members identifies AI-driven structural demand as the main risk to inflation. All of this is detrimental to gold's upward prospects.

However, there is currently little evidence that investors are opening large short positions in anticipation of further declines, indicating a cautious pause in the market rather than a shift in sentiment towards the bearish side. Structural support from central banks remains an important counterbalance to short-term pressure.

The coming days, particularly the development of technical negotiations between the US and Iran, will determine whether gold can hold above $4,100 or retest the psychological level of $4,000.

Regarding the current technical picture for gold, buyers need to clear the nearest resistance at $4,124. This will allow for targeting $4,186, above which it will be quite difficult to break through. The furthest target will be at $4,249. If gold declines, bears will attempt to take control of $4,062. If they succeed, a range breakout will deal a serious blow to bullish positions and push gold down to a low of $4,008 with the potential to reach $3,954.