Breaking: $4,400 key support broken as Gold drops to two-month low on fresh Iran escalation

• Gold attracts sellers for the third straight day as fresh escalation in the Iran conflict boosts the USD.
• Inflation fears bolster Fed rate hike bets, further benefiting the USD and weighing on the commodity.
• Traders now look to the US Prelim Q1 GDP report and the key US PCE Price Index for fresh impetus.

Gold (XAU/USD) remains under some selling pressure for the third straight day and drops to sub-$4,400 levels or a fresh two-month low during the Asian session on Thursday. The risk of a further escalation of tensions in the Middle East underpins the US Dollar’s (USD) reserve currency status, which continues to weigh on the commodity. Furthermore, expectations that global central banks will adopt a more hawkish stance to counter rising inflation turn out to be another factor driving flows away from the bullion.

A US official told Reuters that the US military carried out fresh strikes in Iran on Wednesday, targeting a military site that posed a threat to American forces and commercial maritime traffic in the Strait of Hormuz. The US official also said American forces intercepted and shot down multiple Iranian drones that posed a similar threat. Moreover, US President Donald Trump said that he is not satisfied with the terms negotiated with Iran and that he won’t be rushed into a deal, dampening hopes for a diplomatic solution to end a three-month-old Iran war. Furthermore, major US-Iran disagreements over Tehran’s nuclear program and the Strait of Hormuz keep geopolitical risk premium in play, which, in turn, benefits the Greenback and pressures the Gold price.

Meanwhile, the latest developments prompt a modest recovery in Crude Oil prices from over a three-week trough, touched on Thursday, fanning energy-driven inflationary concerns and fueling expectations of rate hikes. According to the CME Group’s FedWatch Tool, traders are pricing in a nearly 50% chance that the US Federal Reserve (Fed) will raise borrowing costs by 25 basis points (bps) by the end of this year and assigning a 60% chance of a rate increase in January 2027. The bets were further lifted by hawkish comments from a slew of influential FOMC members, triggering a fresh leg up in US Treasury bond yields. This turns out to be another factor supporting the USD and contributing to the offered tone surrounding the non-yielding Gold.

Moving ahead, the market focus now shifts to the release of important US macro data– the Preliminary Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index. The crucial PCE Price Index report is considered as the Fed’s preferred inflation gauge and will play a key role in influencing expectations about the central bank’s interest rate trajectory. The outlook, in turn, should drive the USD demand later during the North American session. Moreover, the incoming geopolitical headlines would continue to infuse some volatility across the global financial markets and provide some meaningful impetus to the Gold price.

XAU/USD daily chart

Gold looks to extend the descent further below a technically significant 200-day SMA

From a technical perspective, the XAU/USD pair keeps a near-term bearish tone inside a downward-sloping channel and below the 500-day Simple Moving Average (SMA). Moreover, the Relative Strength Index (RSI) is hovering around 35 and hints at lingering weak demand. Adding to this, the Moving Average Convergence Divergence (MACD) indicator sits below zero with a negative reading, suggesting downside momentum still dominates.

The commodity is now looking to extend the fall further below the very important 200-day SMA and test the descending channel support, currently near $4,311.11. A sustained drop through this floor would open the way for a deeper retracement within the broader corrective phase. On the top side, any meaningful recovery might confront initial resistance near the $4,480 horizontal zone. A break higher would expose the upper boundary of the descending channel and the 50-day SMA confluence near $4,625-$4,630 as a more formidable supply zone.

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