Gold prices fell sharply at the start of the US Nonfarm Payrolls (NFP) week on Monday, dropping roughly 2% as the metal tested a critical support level near $4,200. The decline marks a resumption of the sell-off after a brief rebound, driven by a combination of geopolitical tensions and shifting monetary policy expectations. These factors strengthened the US dollar, putting pressure on the yieldless precious metal.
Geopolitical tensions support dollar and weigh on gold
Renewed tensions between the United States and Iran over the Strait of Hormuz have helped keep oil prices elevated, reviving inflation fears. Over the weekend, Iran said it was awaiting a definitive US response to a proposal and would not soften its conditions. US President Donald Trump is reported to resume talks with Iran this week, though he also suggested additional military strikes before the midterm elections are possible. Adding to the instability, Saudi Arabia's capital Riyadh came under attack from Houthi militants on Saturday. These geopolitical risks have supported the US dollar and US Treasury bond yields, creating headwinds for gold.
Federal Reserve rate hike bets add to dollar strength
Markets are now pricing in a 66% chance of an interest rate hike at the Federal Reserve's October meeting, according to the CME Group's FedWatch Tool. This hawkish outlook, reinforced by recent Fed policymaker speeches, provides additional support for the US dollar. A stronger dollar typically weighs on gold, which is priced in dollars and offers no yield. Traders are also preparing for US labour data due this week, culminating in the Nonfarm Payrolls report on Friday, which could further influence rate expectations.
Technical analysis: gold holds below key moving averages
In the daily chart, XAU/USD was trading at $4,200, extending a corrective phase with a clear bearish bias. The price remains below the 100-day simple moving average (SMA) at $4,299.28, the 50-day SMA at $4,321.41, the 21-day SMA at $4,344.16, and the longer-term 200-day SMA at $4,540.68. The Relative Strength Index (RSI) stands at 38.82, indicating weakening momentum rather than oversold conditions. On the upside, initial resistance appears near the 100-day SMA, followed by the 50-day SMA and a descending trend-line break around $4,327.36. A dense supply zone sits near the 21-day SMA before the prior trend-line start at $4,519.20. On the downside, the immediate focus is the $4,200 area. If selling pressure deepens, underlying support trend lines near $3,998 and $3,990 could act as a structural floor.
Key takeaways
- Gold fell roughly 2% on Monday, challenging the $4,200 support level.
- Renewed US-Iran tensions and a Houthi attack on Riyadh supported oil prices and the US dollar.
- Markets see a 66% chance of a Fed rate hike in October, adding to dollar strength.
- Technical indicators show gold below key moving averages with weakening momentum.
Common questions
Why is gold falling despite geopolitical tensions?
Geopolitical tensions often boost gold as a safe-haven asset, but in this case they are also propping up oil prices and inflation expectations, which strengthen the US dollar. A stronger dollar typically pressures gold prices lower. Additionally, the prospect of a Federal Reserve rate hike reinforces the dollar's appeal.
What is the significance of the $4,200 level?
The $4,200 area is a psychological support level and the lower boundary of a falling wedge in the daily chart. If it breaks, the next support levels are around $3,998 and $3,990, according to the technical analysis.
Overall, risks appear skewed to the downside for gold amid the re-ignition of Iran-related tensions and increased hawkish Fed expectations. Traders will be watching US labour data and Fed speeches closely for further direction. For the latest price, check the live gold price.