Gold prices (XAU/USD) experienced a sharp decline on Monday, dropping nearly 3% and falling below the $4,000 mark, following hawkish remarks from Federal Reserve Governor Christopher Waller. Waller stated that if the upcoming Consumer Price Index (CPI) data shows an increase, the Fed should consider interest rate hikes, noting that a high core inflation reading 'would force near-term consideration of a rate hike' [1]. Despite this, Waller maintained that it is still credible for inflation to reach the Fed's 2% target without additional rate increases and observed that the labor market is approaching the Fed’s maximum-employment goal [1].
Geopolitical tensions further pressured gold prices. Over the weekend, the US and Iran exchanged fire despite a memorandum of understanding intended to maintain a ceasefire. Tehran’s attacks on shipping vessels led to US retaliation, with US CENTCOM confirming strikes on over 100 military targets near the Strait of Hormuz. In response, Iran attacked Gulf region nations hosting US bases and claimed to have closed the Strait of Hormuz to tanker traffic [1]. These developments fueled fears of energy supply disruptions, causing US crude oil benchmark WTI to surge nearly 6% to $75.70 on Monday [1].
Market participants responded by pricing in 33 basis points of Fed tightening by year-end, according to Prime Terminal data [1]. Technical analysis indicates that gold is respecting a downtrend, with the Relative Strength Index (RSI) approaching oversold territory. Key support levels are identified at the year-to-date low of $3,941, with further downside targets at $3,886 and potentially $3,500 if the decline continues. For a bullish reversal, gold would need to reclaim $4,000 and break above resistance at $4,170 and $4,200 [1].
Looking ahead, the release of US inflation data and Fed Chair Kevin Warsh's testimony before Congress are highlighted as potential catalysts for further gold price movement. A rise in inflation and a hawkish tone from Warsh could accelerate expectations for a rate hike [1].
CONCLUSION
Gold prices suffered a significant drop amid hawkish Fed commentary and escalating geopolitical tensions, with markets now anticipating further Fed tightening. Upcoming US inflation data and Fed Chair Warsh's testimony are expected to be key drivers for gold's next move. The market remains cautious, with technicals pointing to further downside risk unless gold can reclaim key resistance levels.