After gapping higher, gold has gained further ground in this first half of Monday’s session, rising more than 3% on the day and adding to a sharp rebound from recent lows at the back end of last week. The precious metal climbed back to around $4,369 by afternoon session as investors responded to the announcement of a ceasefire between the US and Iran. The rebound comes after two consecutive weeks of declines and marks a sizeable recovery from the sub-$4,100 levels seen last week. While easing geopolitical tensions would normally be expected to weigh on safe-haven demand, the decline in the US dollar and bond yields have provided support for bullion. With the immediate risk of a broader regional conflict fading, investors are now turning their attention towards a busy week of central bank meetings. Any signs of dovishness could boost the gold forecast favourable, while if they are more hawkish-leaning, then the metal could come under renewed pressure. For now, gold and all other risk assets getting a good relief boost.
Dollar’s mild weakness is good news for gold
The anticipated reopening of the Strait of Hormuz have eased concerns over global energy supplies, triggering a sharp fall in oil prices today. Risk assets have welcomed the development, with equity markets extending gains as investors unwind some of the defensive positioning built up during the conflict. Under normal circumstances, improved risk appetite would be expected to undermine haven assets like gold. However, the precious metal has found support from a softer US dollar as markets reassess the inflation outlook following the collapse in energy prices.
The key question now is whether lower oil prices translate into softer inflation expectations and, ultimately, a more favourable monetary policy outlook. While recent US economic data has remained relatively resilient, the Federal Reserve may find it harder to justify a strongly hawkish stance if energy-driven inflation pressures were expected to ease in the coming weeks and months.
Those expectations have helped gold recover despite the improvement in risk sentiment, highlighting that the metal remains highly sensitive to shifts in interest-rate expectations and the direction of the dollar.
Central banks take centre stage this week
With geopolitical tensions cooling, the focus now shifts firmly towards central banks. Investors face a packed calendar that includes policy decisions from the Bank of Japan, Federal Reserve and Bank of England, alongside several other G10 central banks.
The Federal Reserve meeting on Wednesday will be particularly important for gold. Markets are expecting policymakers to maintain a cautious tone, but officials are also likely to emphasise that inflation risks have not completely disappeared. Any indication that the Fed is more cautious to inflation risks could help stabilise the dollar and limit gold’s upside.
Meanwhile, lower energy prices may ease pressure on other central banks, including the Bank of England, which faces a delicate balancing act between slowing inflation and still-elevated wage growth.
For gold traders, the reaction in bond yields and the dollar following these meetings may prove more important than the policy decisions themselves.
Technical gold forecast and key levels
From a technical perspective, gold’s rebound back above the March low has improved the near-term picture, although more price action is needed for me to declare the end of the bearish trend.
The metal successfully recovered back above the March low near $4,098 after a brief breakdown. The rally has now carried prices back towards the important resistance area, starting from around $4,366 and stretching to around $4,450.
This region remains a key battleground for bulls and bears. This is where the 21-day exponential and 200-day simple moving averages meet a descending trendline, and prior support.
Should the bulls manage to clear this key technical area, the broader bearish structure that has dominated recent months would come under serious pressure, providing a positive technical backdrop for the gold forecast.
On the downside, initial support is seen around $4,220, which previously acted as resistance and could now provide a platform for further gains. Below that, the March low at $4,098 remains the key support level to monitor.
A move back below $4,098 would suggest the recent rebound was merely corrective and would highly increase the probability of a breakdown below the psychological $4,000 level.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
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