Gold price (XAU/USD) dropped to around $4,485 during Tuesday’s Asian session, slipping below the $4,500 mark as renewed tensions in the Middle East stoked inflation concerns and reinforced expectations of further Federal Reserve interest rate hikes.
What moved and why
The precious metal fell as investors reacted to escalating Iran-related geopolitical risks. Higher geopolitical uncertainty typically triggers safe-haven buying, but in this case, fears of supply disruptions and higher energy costs are fuelling inflation expectations. That raises the likelihood of the Fed maintaining or even increasing interest rates, which is a headwind for non-yielding assets like gold.
Australian angle
For Australian traders, the drop in USD-denominated gold has direct implications. If the Australian dollar weakens against the US dollar, the AUD-denominated gold price may not fall as sharply. However, the immediate move lower will pressure ASX-listed gold producers such as Northern Star Resources (ASX: NST), Evolution Mining (ASX: EVN), and Newmont’s local units. A sustained decline in gold could weigh on the materials sector, which is a significant component of the ASX 200.
What to watch next
Traders should monitor any diplomatic developments in the Middle East, as well as upcoming Fed commentary. Key levels to watch on XAU/USD include the $4,450 support zone and the recent resistance near $4,550. A break below $4,450 could open the door to further losses.
Outlook: Bearish near-term. Iran tensions may continue to fuel rate hike expectations, keeping gold under pressure until the inflation narrative shifts.
Source: FXStreet