Gold prices have dropped as demand for safe-haven assets has decreased, partly due to easing concerns about tensions in the Middle East. The XAU/USD is still on an upward path but is pulling back after reaching resistance at $3,440. Support is now focused around $3,400. Worries about the Iran-Israel conflict have eased, shifting demand away from Gold towards riskier investments. Although the conflict persists, its limited effect has led to a rally in market risk, reducing Gold’s value.

Focus On Key Support Levels

Technical analysis highlights the importance of support levels below $3,400. If prices drop below this point, we could see more bearish movement. On the other hand, if the price surpasses $3,440, it might head towards $3,500. Traditionally, Gold is viewed as a safe-haven asset and a hedge against inflation, with an opposite relationship to the US Dollar and US Treasuries. Central banks, which are major Gold owners, increased their reserves by 1,136 tonnes in 2022—valued at around $70 billion—marking a record in acquisitions. Factors affecting Gold prices include geopolitical tensions, economic stability, and interest rates. Gold often rises when the US Dollar declines or during periods of lower interest rates, keeping its value due to its dollar-based pricing. Recent changes in the gold market are clear responses to shifts in geopolitical tensions. As fears about the Iran-Israel conflict diminish, funds that were in safer areas like precious metals are moving into higher-risk investments. XAU/USD prices, which had been rising steadily, are now retracing from resistance at $3,440. Focus is now on the $3,400 level, which will be important for short-term trends. A sustained drop below this support may lead to selling pressure, possibly driving prices lower than they’ve been for weeks.

Insights From The Federal Reserve

When trading, it’s essential to view corrections within the larger trend. The long-side structure remains intact, but it’s being tested. If buyers cannot maintain the $3,400 support, this may signal weakening momentum for now. Below this level, traders will look for interim support near historical lows or clustered orders where buying interest has appeared before. Conversely, if Gold regains strength and breaks through $3,440 with good volume, it could move toward key levels around $3,500, where significant reactions are likely. Federal Reserve Chair Powell and his colleagues—as well as the broader yields in US Treasuries—play a crucial role in this scenario. Real interest rates and inflation expectations influence the appeal of non-yielding assets like Gold. The inverse relationship between the US Dollar and Gold is still strong, putting downward pressure on Gold when the Dollar strengthens. It’s not that Gold weakens on its own, but rather it adjusts based on changes in opportunity cost. Recent stability in political matters has made these adjustments clearer. The activity of official buyers can’t be overlooked either. In 2022, central banks acquired substantial amounts of Gold, which may help cushion any medium-term declines. However, such support is unlikely to prevent short-term price fluctuations and should be viewed more as a long-term factor than immediate price protection. Market movements continue to be driven by short-term assessments of risks, rate expectations, and currency fluctuations. For traders, staying alert to incoming economic data and signals on monetary policy is crucial. The current market environment doesn’t allow for passive trading; stops should be adjusted as the situation changes to manage potential volatility. Rapid market responses could occur within hours, making it better to follow levels supported by volume or past behavior rather than chasing speculative trades. With fears of demand fading, Gold is now influenced more by relative value factors than by emotional impulses. While there’s still some buying interest, it’s less urgent, which shifts the dynamics toward a more technically driven approach in the near term. Create your live VT Markets account and start trading now.

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