Gold (XAU/USD) fell to a fresh two-month low on Thursday, trading at $4,386 after reaching an intraday low of $4,366, as market participants shifted focus to inflation risks and upcoming US PCE data [1]. The decline in gold prices comes amid renewed military escalation in the Middle East, with the US conducting a second 'defensive' strike on Iranian military facilities this week. In response, Iran's Islamic Revolutionary Guard Corps (IRGC) claimed to have targeted a US airbase in the Gulf region and warned of 'more decisive' action if US 'aggression' continues [1].
Despite ongoing talks between the US and Iran, negotiations remain stalled over issues such as Iran's nuclear program, sanctions relief, and the release of frozen Iranian assets. US President Donald Trump stated that Iran would not receive sanctions relief in exchange for giving up highly enriched uranium [1].
In this environment, traders have favored the US Dollar (USD) over gold as a safe-haven asset, with the US Dollar Index (DXY) trading around 99.35 after hitting a seven-week high of 99.54 earlier in the day [1]. The gold market has been under pressure since the onset of the US-Iran war in late February, as rising oil prices have intensified inflation concerns. This has led to expectations that the Federal Reserve and other major central banks may keep interest rates higher for longer or even raise them further. US Treasury yields remain elevated, with the benchmark 10-year yield rebounding after easing from a 16-month high earlier this month [1].
Looking ahead, traders are awaiting the US Personal Consumption Expenditures (PCE) Price Index report for further guidance on the interest rate outlook. Economists expect the core PCE Price Index to rise 3.3% year-over-year in April, up from 3.2% in March. According to the CME FedWatch Tool, markets are currently pricing in about a 40% chance of a 25-basis-point rate hike at the December meeting [1]. Fed Vice Chair Philip Jefferson highlighted that rising energy prices pose a 'downside risk to growth' and are a 'potential inflation driver,' reiterating the Fed's commitment to restoring inflation to 2% and noting that recent US economic activity 'remains robust' [1].
From a technical perspective, XAU/USD remains bearish, trading below the 200-day Simple Moving Average (SMA) at $4,398 and also below the 50-day and 100-day SMAs. The Relative Strength Index (RSI) is at 34, just above oversold territory, while the MACD indicator remains in negative territory [1].
CONCLUSION
Gold prices have come under significant pressure due to escalating geopolitical tensions and persistent inflation risks, prompting traders to favor the US Dollar. With markets closely watching upcoming US PCE data and the Federal Reserve's policy outlook, gold's near-term direction remains uncertain. Technical indicators suggest continued bearish momentum for XAU/USD.