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For much of this conflict, gold tends to move in tandem with the beat of risk trades. But so far this week, it has been anything but that. While broader markets are feeling more optimistic on the US-Iran situation, gold and silver have struggled to stay afloat instead. And with the drop we’re seeing today, gold prices are now dipping down to their lowest since 30 March in falling back below $4,450 currently.The precious metal is down over 1% after the selloff yesterday and is losing altitude after a bit of a bounce in early May.The bounce at the time stalled near the 100-day moving average (red line) and now it seems that sellers are looking to take aim at the 200-day moving average (blue line) instead. The key technical level is seen at $4,388 and will be major point to be wary of. That especially as it is what helped to arrest the heavy drop during March.If that gives way, it will free up plenty of scope for gold to drop further in the weeks ahead.So, what exactly is driving the change in momentum for gold in relation to risk assets?One key factor is arguably a continued shift in interest rate odds. Amid a time when central banks were cutting interest rates, gold was a standout player for almost two years. And it wasn’t long ago that we were still talking about the surging run in precious metals back in January.Now, part of that equation has flipped. Even if the US-Iran war may be taking a step closer to reaching a conclusion, market players are growing very anxious on the damage that has already been done.The global inflation outlook is in a rather precarious spot at the moment. And we’re seeing central bank odds reflect that, especially after the bond market rout in the past two weeks before this one.Fed rate hike odds have moved up and traders are event pricing in ~15 bps of rate hikes by year-end now. Just last month, traders were expecting no change at all for the Fed by year-end.As more major central banks lean towards tightening policy in response to inflation concerns, higher rates are a bane for gold as investors move back to more traditional high-yielding assets.That is just part of the story of course but it is one key factor in play that could be weighing on the outlook for gold currently.
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
Gold’s recent struggle despite a bullish market sentiment is a red flag for traders. Typically, gold moves inversely to risk appetite, but this week, it’s bucking that trend. The optimism surrounding the US-Iran situation has pushed equities higher, yet gold and silver are lagging, which suggests underlying weakness or a potential shift in market dynamics. If this divergence continues, it could signal that traders are reassessing their positions, possibly indicating a future pullback in equities or a flight to safety. Keep an eye on key support levels for gold; if it breaks below its recent lows, it could trigger further selling pressure. Conversely, if gold manages to reclaim its footing, it might indicate a renewed interest in safe-haven assets. Watch for any news developments regarding geopolitical tensions or economic indicators that could sway market sentiment. If gold fails to rally while equities rise, it might be time to reconsider long positions in precious metals.
📮 Takeaway
Monitor gold’s support levels closely; a break below recent lows could signal further downside while a rebound may indicate renewed safe-haven interest.
