Gold Price Forecast: XAU/USD Slips Below $4,000—Why Isn’t Gold Acting Like a Safe Haven?
Gold is sending an unusual signal. Amid worsening violence in the Middle East, XAU/USD dropped below the $4,000 level and is headed...
Quick overview
- Gold prices have dropped below $4,000, marking the largest weekly loss in six weeks despite rising geopolitical tensions.
- Concerns over rising oil prices and inflation are overshadowing traditional gold demand, leading to expectations of prolonged high interest rates.
- Central banks continue to buy gold strategically, while North American ETF investors are pulling back due to higher yielding securities.
- The gold market is currently focused on maintaining the $4,002 resistance level, with potential downside targets at $3,940 and $3,890.
Gold is sending an unusual signal. Amid worsening violence in the Middle East, XAU/USD dropped below the $4,000 level and is headed for the largest weekly loss in six weeks. While conflicts usually trigger gold demand, this week investors are concerned about oil price strength, inflation and further Federal Reserve rate increases.
That narrative shift has turned the tables on gold. Instead of riding the waves of a geopolitical storm, gold is contending with the greenback’s strength and higher US Treasury yields amid concerns about the future US rate trajectory.
Why Gold Is Falling Even as Geopolitical Risks Rise
The most unexpected aspect of this week is not the war but the way the markets are reacting to it. Geopolitical tensions between the US and Iran have affected oil transport in the Strait of Hormuz, resulting in a 12% advance for crude prices over the course of the week. This advance in oil prices did not lead gold prices to rise but raised concerns that the second half of this year would see higher inflation.
Higher oil costs increase transport and production costs and may keep inflation above the target level for an extended period. Given that, many traders are pricing in the possibility that US interest rates will remain elevated until 2026 and are less likely to benefit from a non-yielding asset like gold.
Fed Expectations Are Becoming Gold’s Biggest Headwind
Earlier this week, weak US inflation data supported prices for gold, with both consumer and producer price reports missing expectations.
The gold bulls quickly lost steam.Investors are now expecting that June’s inflation data did not reflect the recent surge in oil prices and that future tightening of monetary policy is more likely. As of July 17, the market expected roughly a 73% chance of another rate increase from the Federal Reserve before December.
Rising interest rates provide higher returns for Treasuries and cash, making gold less attractive as it offers zero return. For now, Fed rate expectations are far more important to gold prices than geopolitical developments.
Central Banks Continue Buying While ETF Investors Step Back
The short-term market narrative may have turned bearish, but the long-term trend remains positive. Central banks have continued to buy gold at a rapid pace. The World Gold Council expects official institutions to have added roughly 1,000 tonnes over the past four years, while 89% of the institutions surveyed expect the central bank’s holdings of gold to rise over the next year.
That said, investors have become more cautious. Physically backed gold ETFs experienced $8.9 billion in outflows during June, driven mainly by funds based in North America, which were likely shifting money into higher yielding securities.
This shows a divided sentiment in the markets today, with central banks buying on a more strategic basis as Western-based investors weigh higher rates and bond yields.
Can Gold Reclaim $4,000?
Future gold prices will ultimately hinge on whether there is positive news for gold, such as falling oil prices, weaker Treasury yields and a resurgence in ETF buying. On the other hand, higher oil prices, additional hawkish remarks from the Federal Reserve and higher demand for the dollar will all work to keep the bears in the driver’s seat. For now, $4,000 remains the market’s most important level.
Gold Price Forecast: XAU/USD Breaks Key Support as Bears Eye $3,940
The gold price (XAU/USD) is trading at around $3,981, after it broke the lower line of the current symmetrical triangle pattern on the 4-hour time frame and broke below the $4,002 zone.
$4,002 should now act as resistance, and the XAU/USD pair continues to trade below both the 50-period exponential moving average at $4,055 and 200-period exponential moving average at $4,185.
The RSI reading is around 38, showing that bearish sentiment dominates the current price action. Buyers need to bring the gold price back above $4,002 to have any further upside chances. Otherwise, the next price downside targets will be $3,940, followed by the stronger price support at $3,890. A price breakdown below $3,940 increases the likelihood of an even more significant correction for the precious metal.
The Bottom Line
Gold fell below $4,000 despite increasing geopolitical risk. Higher oil prices increase inflation expectations and support the argument for higher interest rates. Central banks continue buying but investors in the gold ETFs trimmed exposure in June. Price failure to hold the $4,002 level now brings attention to the $3,940 and then $3,890 zone.
- Check out our free forex signals
- Follow the top economic events on FX Leaders economic calendar
- Trade better, discover more Forex Trading Strategies
- Open a FREE Trading Account
- Read our latest reviews on: Avatrade, Exness, HFM and XM
Related Articles
Sidebar rates
Related Posts
SaveAva
