Gold prices (XAU/USD) declined by 0.7% to near $4,475 during the European trading session on Wednesday, despite a significant sell-off in oil, with WTI Oil down 3.8% to around $89.00 [1]. The precious metal has been underperforming in recent months, as elevated oil prices—driven by the Middle East war—have contributed to higher US inflation and led traders to scale back expectations for dovish Federal Reserve (Fed) policy this year [1].
Geopolitical tensions remain high, with uncertainty surrounding a potential US-Iran deal. Iran has condemned recent US 'defensive strikes,' and the Islamic Revolutionary Guard Corps (IRGC) has threatened retaliation. On Monday, the US Central Command launched strikes on Iran, described as 'self-defense' actions to protect US troops from Iranian threats, according to BBC reports cited in the article [1].
The shift in market sentiment appears to be driven by Fed policymakers' increased focus on inflation rather than labor market weakness. Minneapolis Fed President Neel Kashkari stated that higher US inflation is now the central bank's primary concern, though attention to both inflation and employment remains necessary [1]. According to the CME FedWatch tool, there is a 52.3% probability that the Fed will hold interest rates steady this year, while the remainder of market participants anticipate at least one rate hike—a notable reversal from earlier expectations of two rate cuts prior to the escalation of the Middle East conflict [1].
From a technical perspective, gold remains bearish, trading below the 20-day Exponential Moving Average (EMA) at $4,586.85, with a subdued Relative Strength Index (RSI) at 39, indicating sellers are in control. Immediate resistance is at the 20-day EMA, and a daily close above this level would be required to ease downside pressure. On the downside, gold could fall towards the March 26 low at $4,351.23 if it remains below the May 20 low at $4,453.72 [1].
CONCLUSION
Gold is under pressure as inflation concerns and a hawkish Fed outlook outweigh the impact of falling oil prices. With geopolitical risks persisting and the Fed likely to maintain or even raise rates, the near-term outlook for gold remains bearish. Technical indicators suggest further downside is possible unless gold can reclaim key resistance levels.