Gold sticks to losses as Oil-driven inflation fears temper rate cut bets and underpin USD
- Gold kicks off the new week on a weaker note as inflation concerns continue to boost the USD.
- The risk of a further escalation of Middle East tensions lends some support to the commodity.
- The technical setup favors the XAU/USD bears and backs the case for further near-term losses.
Gold (XAU/USD) maintains its offered tone just below the $5,100 mark through the first half of the European session, though it holds above a four-day low touched earlier this Monday. Investors remain worried about the effects of a protracted Middle East conflict on Crude Oil prices and the global economy, which assists the safe-haven precious metal to attract some intraday buying ahead of the $5,000 psychological mark.
In fact, the joint US-Israeli campaign against Iran enters its tenth day on Monday, with no signs of an end to hostilities. Moreover, Iran named Ayatollah Ali Khamenei's son, Mojtaba Khamenei, as the new Supreme Leader, signaling hardliners remain firmly in charge. This raises the risk of a further escalation of tensions as the move is unlikely to be welcomed by US President Donald Trump, who had declared the son "unacceptable".
Moreover, the closure of the Strait of Hormuz – a vital shipping route for oil and gas – fuels worries about an energy shock, which could disrupt global economic activity. These further temper investors’ appetite for riskier assets, which is evident from a sea of red across the global equity markets, and offered additional support to the Gold.
Meanwhile, an intraday surge of over 25% in Crude Oil prices fueled inflation concerns and further dimmed the prospects for near‑term rate reductions by the US Federal Reserve (Fed), offsetting Friday's dismal US Nonfarm Payrolls (NFP) report. This, in turn, lifts the US Dollar (USD) to a fresh high since November 2025 and keeps a lid on any further recovery for the non-yielding Gold, warranting some caution for bullish traders.
XAU/USD 4-hour chart
Gold weakness below 200-EMA on H4 should pave the way for deeper losses
The near-term bias is neutral with a modest downside tilt, as the Gold price oscillates above the rising 200-period Exponential Moving Average (EMA) on the 4-hour chart, showing that the broader uptrend remains intact but momentum has cooled. The Moving Average Convergence Divergence (MACD) indicator slips marginally below its signal line around the zero mark and the histogram has turned slightly negative, suggesting fading bullish pressure rather than an outright bearish regime. The Relative Strength Index at 43 hovers below the 50 midline, aligning with a consolidative tone after the late pullback from this month’s highs.
Immediate support emerges at the $5,060 region, guarding the more important $5,000 area where the 200-period EMA converges with recent reaction lows, and a break below this zone would open the way toward $4,960. On the upside, initial resistance is located around $5,140, the latest swing high before the current drift lower, followed by $5,180 as the next barrier to restore a more convincing bullish profile. A sustained move above $5,180 would neutralize the current downside bias and expose the $5,230 area, while failure to hold above $5,000 would shift focus toward a deeper corrective phase.
(The technical analysis of this story was written with the help of an AI tool.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.