Gold ticks up on soft dollar; experts flag bearish setup intact

Gold prices were slightly higher on Monday as a softer dollar boosted sentiment. 

A weaker dollar offset a jump in energy prices, which intensified inflation fears and further reduced the likelihood of the US Federal Reserve interest rate cuts this year.

The weakening US dollar made commodities priced in the currency less expensive for people holding other forms of money.

The June gold contract on COMEX was at $4,550 per ounce, up 0.6%, while silver was 1.1% higher at $70.520 an ounce. 

Brent crude prices soared past $115 per barrel, achieving a record monthly increase of 60% in March.

This rally follows the weekend attacks by Yemeni Houthis on Israel, an escalation that intensifies the conflict and fuels further inflation concerns.

US President Donald Trump stated that Washington and Tehran have engaged in meetings, both "directly and indirectly," and characterised Iran's new leadership as "very reasonable." 

This statement comes as more US troops deploy to the region, and Tehran issues a warning that it will not tolerate humiliation.

Minimal likelihood of Fed rate cut

Meanwhile, traders now anticipate a minimal likelihood of a US interest rate cut this year.

This shift is driven by the threat of rising energy prices contributing to wider inflation, thereby restricting the possibility of monetary easing. 

This is a significant change from pre-conflict expectations, which had factored in two rate cuts.

The appeal of gold as an inflation hedge is generally strong, but high interest rates negatively impact demand for the non-yielding metal.

The price of gold has dropped over 15% this month, making it the steepest monthly decline since October 2008.

This fall is largely attributed to the strengthening US dollar, which has gained more than 2% since the start of the US-Israeli war on Iran on February 28.

“The yellow precious metal, which is typically sought as a safe haven in times of war, is under heavy pressure due to shifting interest rate expectations, which in turn are driven by the looming inflation shock,” Barbara Lambrecht, commodity analyst at Commerzbank AG, said. 

However, the price decline of over 15% since early March is likely also due to the extremely sharp price increases at the start of the year.

Bearish technical setup

Gold has been hovering around $4,300-$4,500 per ounce over the last one week. 

“The range-bound price action witnessed over the past week or so might be categorized as a bearish consolidation phase amid the recent breakdown below the 100-day Simple Moving Average (SMA),” Haresh Menghani, editor at FXStreet said in a report. 

Caution is advised before initiating new bearish positions, as the market showed a strong recovery last week, bouncing off the crucial 200-day SMA support, Menghani added.

The Moving Average Convergence Divergence (MACD) continues to indicate persistent downward momentum.

The MACD line is still positioned below both its signal line and in negative territory, a trend further supported by the negative histogram.

“The Relative Strength Index (RSI) hovers in the mid-30s after recovering from oversold readings, hinting that bearish pressure is easing but not yet reversing,” he said.

A break above the immediate resistance, which is the 100-day SMA near $4,630, is required to clear the path toward the next upside barrier at $4,880, according to Menghani. 

Initial support is located at the recent low, near $4,380, the point where previous selling momentum paused.

Should sellers increase pressure, the next, lower support zone is found at $4,300, Menghani said.