Gold (XAU/USD) prices collapsed by more than 3% on Wednesday, trading at $4,130 after briefly touching two-month lows near $4,105. This sharp decline followed a combination of hotter-than-expected US inflation data and heightened geopolitical tensions after US President Trump threatened to 'attack Iran hard' if Tehran does not sign a deal, in response to Iranian attacks on US bases in the Gulf States, Jordan, Kuwait, and Bahrain [1].
The US Consumer Price Index (CPI) for May rose to 4.2% year-over-year, its highest level in three years, driven primarily by a 3.9% increase in energy prices. Core CPI also edged up to 2.9% year-over-year. These figures reinforced expectations that the Federal Reserve may keep interest rates higher for longer, a negative factor for non-yielding assets like gold. Money markets are currently pricing in 21 basis points of Fed tightening by year-end, slightly below the 25 basis points anticipated earlier in the week [1].
The market reaction extended beyond gold, with the US crude oil benchmark WTI rising 2.62% to $91.00 per barrel following Trump's remarks. US Treasury yields also climbed, with the 10-year T-note yield increasing by nearly two basis points to 4.536%. Traders are now turning their attention to the upcoming May Producer Price Index (PPI) release, with headline PPI expected to rise to 6.4% year-over-year and core PPI to 5.4%. Weekly jobless claims are also projected to decrease from 225,000 to 219,000 for the week ending June 6 [1].
From a technical perspective, gold has turned bearish, with sellers targeting a break below the recent cycle low at $4,098, which could open the door for a further decline toward $4,000. The next significant support is identified at the October 28, 2025 swing low of $3,886. The Relative Strength Index (RSI) for gold has entered oversold territory but has not yet reached the extreme level of 20, suggesting a potential for price consolidation. For a bullish reversal, XAU/USD would need to reclaim the 200-day Simple Moving Average at $4,443, which could pave the way for a move toward $4,500 [1].
CONCLUSION
Gold prices suffered a significant decline due to a combination of elevated US inflation and escalating geopolitical risks, which boosted oil prices and Treasury yields. The market is now focused on upcoming PPI data and jobless claims for further direction. Technical indicators suggest gold remains under pressure, with key support levels in focus.