Gold Prices Poised for Steep Decline to $4,400 Amid Bearish Technical Indicators

Gold Prices Decline 17% from All-Time High Amid US-Iran War Tensions

US spot gold prices have declined in 7 consecutive sessions ending March 19, only to rebound today. The prices have slumped 12% in March so far, snapping their 6-month winning run. From its all-time peak of $5,595/ounce, the prices have declined by 17%.

Contrary to the trend, gold prices, which ideally should have risen on safe-haven demand, have been knocked down amid the escalating tensions in the Middle East. The decline is attributed to the impact on inflation amid crude oil price rise, which has put the Fed's rate cut math in jeopardy.

Fed Chairman Jerome Powell's hawkish tone has contributed to the decline, with the Fed facing a tariff shock, a pandemic, and now an energy shock, which could fuel inflationary expectations. NS Ramaswamy, Head of Commodity & CRM, Ventura, notes that bullion is trading less on "geopolitical hedging demand" and more on higher inflation risks, resulting in delaying the US Federal Reserve’s rate cut trajectory.

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A high interest rate environment is non-favorable for non-yielding assets like gold. The US dollar also continues to advance on the rising oil prices and the Fed’s hawkish rhetoric, exerting pressure on gold prices. The dollar index is up nearly 2% in March.

Gold Price Outlook

While structurally, gold’s position as a safe-haven remains, oil has also emerged as an asset class in the wake of the crisis. YES Bank notes that if the war continues in the medium term, the positioning in gold will be a delicate balance between real yields, the dollar’s direction, and on the other side, the need for defensive investments.

Technical Analysis

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Gold has broken all the near resistances at $5200, $5000, and also the reversal signals near $4796-$4696. YES Bank cautions that a close below $5000 on a daily basis will confirm the breakout for a move to $4600/4400, while this will be invalidated above $5150.