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Gold continues the moderate decline that began after reaching a more-than-two-week high. Inflation worries are increasing expectations of Fed rate hikes and putting pressure on the metal.
Today, Thursday, gold (XAU/USD) is attracting sellers, slipping below the round $4,100 level and retreating from yesterday's two-week high. Rising tensions between the US and Iran are pushing oil to fresh July highs, stoking inflation concerns and increasing the odds of Fed rate hikes.
This adds pressure to Treasury yields, which remain close to multi-month highs — a headwind for non-yielding precious metals.
The US and Iran have been exchanging strikes for the twelfth consecutive night, while Iran-backed Houthis in Yemen have opened a new front by declaring a blockade of a key Red Sea shipping route that carries roughly 7% of global oil flows. That further raises supply-disruption risks amid a marked drop in transits through the Strait of Hormuz and has helped lift oil prices since the start of the month. Investors remain worried that higher energy prices could rekindle inflationary pressure and force central banks into tighter policy.
CME Group's FedWatch tool shows traders currently pricing the probability of at least one Fed rate hike by year-end at over 90%. These expectations support demand for the US dollar during the pullback, which is another factor diverting capital away from gold.
Still, watch for further sell-offs in the gold market before concluding that the week's uptrend is exhausted.
Deutsche Bank analysts note that shifts in policy expectations have been accompanied by significant repricing: investors now expect tightening equivalent to a 34-bp rise by the December meeting, about 2.3 bp higher than prior forecasts. That repricing has supported higher US real yields and triggered a broader sell-off along the Treasury curve.
For trading opportunities today, pay attention to the weekly US initial jobless claims release, which may move markets at the start of the North American session. The ECB meeting is also scheduled and could add volatility. Finally, further Middle East developments are likely to create short-term trading opportunities in gold.
From a technical perspective, gold has found support at the 20-day SMA. Oscillators are negative but close to neutral, suggesting bulls are still fighting despite persistent pressure. Resistance sits at $4,145 — above that level, bulls will have to contend with the July high. To gain control of the market, they will ultimately need to push above the 200-day SMA.
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