Written by: Basant El-Farmawy
Gold prices witnessed a notable decline to reach levels near $3,986 per ounce, marking their lowest level in three months. This drop comes at a time when global oil prices continue to rise, driven by concerns regarding energy supplies resulting from escalating geopolitical tensions in the Middle East.
The impact of energy disruptions on gold
Fears of a widening conflict in the Middle East pushed crude oil prices higher, with West Texas Intermediate (WTI) trading around the $100 per barrel mark. This escalation led to increased inflation concerns, reinforcing expectations that global central banks would adopt more stringent monetary policies for a longer period, which in turn increases the opportunity cost of holding gold as a non-yielding asset.
Regarding US monetary policy, markets are awaiting the Federal Reserve's decision next week, amidst widespread expectations to keep interest rates unchanged within their current range of 3.75% to 4.00%. Investors are expected to closely monitor comments from Federal Reserve Chairman Kevin Warsh regarding inflation forecasts and the impact of artificial intelligence technologies on the general demand structure.
Technical analysis and market trends
Technically, gold shows a bearish trend in the short term, as the price is trading below the 20-week exponential moving average, which rests at the $4,282 level. The Relative Strength Index (RSI) indicates weak momentum, reinforcing the possibility of continued selling pressure. Should the recent consolidation range be broken, the yellow metal may head to test new support levels at $3,830.
Historically, gold plays a major role as a safe haven in times of turmoil, but its strong inverse correlation with the US dollar and Treasury bonds makes it sensitive to movements in monetary policy and inflation data. Central banks remain major buyers of gold within their strategies to diversify cash reserves to counter global economic volatility.
