On Monday, July 14th, our analysis suggested that the escalating military conflict between the United States and Iran was intensifying global inflation concerns. This development reinforced expectations for Federal Reserve interest rate hikes, directly pressuring gold prices. Additionally, short-term technical indicators pointed to increased risks of a gold pullback. Consequently, we advised monitoring key resistance levels at $4,080 and $4,100, with support levels at $4,020 and $4,000. A break below these support levels would heighten the short-term downside risk, potentially targeting $3,943.
The subsequent market movement largely aligned with this view. During Monday's European session, gold encountered resistance after rebounding to $4,068. Following the U.S. market open, prices fluctuated lower, briefly stabilizing at the $4,000 psychological level before breaking downward to establish a daily low around $4,986. At Tuesday's open, gold continued to face short-term selling pressure, dipping to $3,983 before finding support. Prices then staged a recovery, climbing to $4,034 before meeting renewed resistance. Gold is currently trading near $4,020. Overall, the rebound's failure and the subsequent decline to new lows confirm our assessment of heightened downside risks for the precious metal.
Key Factors Influencing Gold's Decline
Analysis indicates that recent pressure on gold stems primarily from inflation dynamics and monetary policy expectations. Specifically, the U.S. launched a large-scale airstrike on Iran, effectively rupturing the existing ceasefire. The ensuing escalation saw Iran announce the closure of the Strait of Hormuz, prompting the U.S. to reinstate a maritime blockade. These geopolitical events directly fueled a significant surge in oil prices, pushing them to a near one-month high. Elevated oil prices exacerbate inflationary pressures, and the resulting inflation expectations compel the Federal Reserve to maintain a restrictive monetary policy. This reinforces market expectations for a potential rate hike this year, with current pricing suggesting over a 70% probability of a September increase. This supports a strong U.S. dollar, which in turn weighs on non-yielding assets like gold.
Technical Perspective on Gold
On the daily chart, gold experienced sustained pressure throughout last week, and the bearish momentum has continued into this week, indicating a short-term weak trend. Key support levels to watch are near the recent intraday low around $3,980, followed by the approximate half-year low near $3,940. On the upside, immediate resistance is observed near the recent intraday rebound high of $4,035. Further resistance is anticipated around the 4-hour Bollinger Band midline at $4,075, and the $4,100 psychological level, which also coincides with the daily Bollinger Band midline. Technical indicators, including a bearish crossover in the 5-day moving average, a downward-turning MACD crossover, a bearish KD-J crossover, and a slightly upward-turning but still bearish RSI, collectively suggest that gold remains vulnerable to further declines.
Summary and Outlook
In summary, the ongoing escalation of military conflict between the U.S. and Iran has driven oil prices sharply higher, intensifying inflation concerns. This reinforces expectations for Federal Reserve tightening, underpinning dollar strength and consequently pressuring gold prices. A range-trading approach is recommended for operations. Key support levels are at $3,980 and $3,940, while resistance is expected near $4,035, $4,075, and $4,100.
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