Gold prices saw a slight recovery after a recent drop, gaining around 0.25% on Friday, hovering near $2,340. This recovery is driven by increased interest in Gold’s safe-haven demand appeal, largely due to ongoing geopolitical concerns and uncertainty in global markets.
Gold Pulls Back Amid Geopolitical Concerns
Heightened geopolitical tensions, particularly China’s military drills near Taiwan, along with international political shifts like Ireland, Norway, and Spain recognizing Palestine as an independent state, have intensified market concerns. These factors have made Gold an attractive asset for risk-averse investors seeking stability in uncertain times.
On the same day, Asian markets faced widespread losses, with major indices such as the Hang Seng dropping by 1.71%, the Shanghai Composite by 0.90%, and the Nikkei ending 1.36% lower. Investor fears over rising interest rates further contributed to a gloomy market sentiment.
Gold Prices Retreat After US Economic Data Release
Strong US economic data released on Thursday weighed on Gold’s performance. The US Purchasing Manager Index (PMI) numbers for May, particularly in the services sector, exceeded expectations. This sector, known for contributing to inflation, dampened hopes of the Federal Reserve reducing interest rates anytime soon. As a result, Gold, which does not yield interest, became less attractive to investors due to the higher cost of holding it.
India’s Gold Import Decline
Gold demand in India, one of the world’s largest consumers of the precious metal, is slowing down. According to Reuters, high Gold prices are leading to a reduction in imports. Lallalit Srijandorn from FXStreet pointed out that customers in India are increasingly trading in old jewelry for new, contributing to the reduced demand for fresh Gold imports.
Technical Analysis: Gold Breaks Key Support Trendline
From a technical perspective, Gold prices (XAU/USD) has broken through a critical trendline that has been supporting the upward momentum since February. This significant breach indicates a more bearish outlook, suggesting that the price may continue to decline in the short term.
The recent steep drop from record highs hints that Gold may be entering a short-term downtrend, making short positions more favorable than long ones at this stage.
XAU/USD: 4-Hour Chart Breakdown
The break below the key trendline suggests that Gold could fall to around $2,303, based on previous price movements, and potentially further down to $2,272. These levels coincide with earlier support levels seen in May. A decisive break below $2,325 would likely confirm continued downward movement toward these targets.
Currently, the Relative Strength Index (RSI) is in neutral territory, having recently emerged from oversold conditions. This indicates a potential short-term rebound, though a sustained recovery is yet to be seen.
Short-Term Outlook and Key Levels
Although Gold’s long-term trend remains positive, the short-term price action is showing little sign of a recovery at present. However, if Gold manages to break above $2,360, it could signal a reversal of the current downtrend. Such a reversal would require a strong bullish signal, such as a large upward candle or three consecutive green candles on the chart.
Conclusion:
As geopolitical risks rise and investor sentiment shifts, Gold’s role as a safe-haven asset continues to attract attention. However, the precious metal’s short-term outlook remains uncertain, with potential further declines ahead unless key resistance levels are decisively breached.
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