Middle East Tensions Soften

Gold prices are retreating sharply lower this week as traders react to a slight easing of tensions in the Middle East. Gold futures posting their largest one day decline yesterday since June 2021 and are now down more than 5% from the current highs. Fears of a wider conflict emerging have been somewhat allayed after retaliatory attacks between Iran and Israel look to have abated for now. Following an Israeli missile response against Iran on Friday, which itself was seen as limited,  Monday saw the Iranian foreign minister confirming that the country had no plans to carry out further attacks at this point. Given Israel’s limited response and Iran’s lack of desire to pursue further attacks, traders are noting a softening of risks there, weighing on gold via reduced safe-haven demand.

Fed & USD Impact

On the back of the heavy rally we’ve seen so far this year, gold prices have been vulnerable to a correction for some time and the move could well run deeper here. Looking ahead, the safe-haven metal retains obvious bullish risks linked to any escalation of violence in the Middle East. Traders will also be keeping an eye on USD flows. For now, the hawkish shift in Fed expectations (easing projections pushed out from June to September) looks likely to add to bearish pressure in gold, particularly if we see any lift in Friday’s core PCE data.

Technical Views

Gold

The rally in gold prices has stalled for now around the 2400 level with price subsequently reversing back inside the bull channel. With momentum studies bearish, a further dip lower is likely and 221.39 will be the next key support to note. Below there, 2149.72 and the bull channel lows will be the key pivot for bulls to defend to maintain the broader bullish outlook.