Gold Recovers—But It’s Not Out of the Woods Yet

• Gold holds above $4500, but recovery remains fragile after the recent sharp sell-off.
• Oil strength, rising yields, and a strong US dollar continue to cap upside for gold.
• Key levels $4700 resistance and $4400 support are likely to guide near-term direction.

Gold started the week on the front foot, rising around 0.8% in early Monday trade and holding above the $4500 mark. That said, it’s still recovering from the sharp sell-off earlier this month when tensions between Israel and Iran escalated rapidly. So, while the bounce looks encouraging, it’s probably too early to call it a clean turnaround.

It Is All About Oil Prices

Crude oil has remained supported following the events over the weekend, where the fighting between Israel and Iran continued, with Houthis joining the war. While Trump again insisted that negotiations with Iran are going well, this was yet again dismissed by Iran.

While US index futures and European markets found mild support, this could turn out to be another false hope as we have seen in previous Mondays. In fact, the US dollar was already on the ascendancy again and bond yields were holding their own well.

With spot Brent oil holding well above $110, this is further pushing back bets for central bank rate cuts, with some now considering rate hikes. The strong US dollar, rising bond yields, and bets for central bank rate hikes are – for now – offset by heightened haven demand, which is keeping the metal relatively supported.

But confidence is shaken after gold’s one-way price action came to an end in recent months. Looking ahead, it all now depends on how the Middle East situation evolves and what it might mean for energy prices, and, in turn, inflation and therefore central bank policy response.

If crude oil falls back in the coming weeks on any real signs of de-escalation, then this will likely allow the US dollar to ease back, providing support for gold and other risk assets. But the situation remains far from resolved. Iran appears less willing to negotiate, looking to use high energy prices as leverage. Until there are concrete steps towards a ceasefire and an end to the conflict, I would take any short-term moves against the recent trend with a pinch of salt. 

Gold Technical Analysis

Gold ended last week broadly flat, managing to recover after Monday’s drop, which followed significant losses over the preceding couple of weeks. The precious metal was able to hold above the $4400 level — the February low — and that offers a mildly positive signal.

However, a lot more is needed to convince traders that gold has truly bottomed out. There are several resistance levels above the market that could cap any upside, especially given that the metal has been trending lower since peaking in January.

Key Levels to Watch

Among the key levels to watch is the underside of the broken short-term bullish trend line, along with resistance around $4700. This area is reinforced by the 21-day exponential moving average, which comes in near $4750. As such, the $4700–$4750 region marks an important zone of potential resistance if prices move higher.

Above that, the next area of interest lies between $4800 and $4840, which previously acted as both support and resistance. A decisive break above this region could pave the way for a continuation towards the $5000 psychological level.

On the downside, the key support zone to monitor is between $4400 and $4500. This is a pivotal region. A daily close below this area would weaken the near-term outlook and could open the door for a move back towards last week’s lows around $4100, where the 200-day moving average comes into play.

Below that, longer-term support sits near the $4000 level, where a major bullish trend line converges with this psychologically important threshold.

So, gold is not out of the woods just yet.

***

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

Read my articles at City Index