Gold price forecast amid inflation risks as US-Iran escalation resumes

Gold price remains under pressure this week as concerns about inflation continued. XAU dropped to $4,530, its lowest level since March 31st. It has slumped by over 18% from its highest point this year, and technicals suggest that it has more downside to go.

Inflation risks rise as the US-Iran ceasefire nears its end 

Gold price dropped sharply this week and remains under pressure as concerns about inflation rose.

Iran announced that it shot at a key US vessel on Monday after President Donald Trump announced his Project Freedom to escort ships cross the Strait of Hormuz.

At the same time, Iran launched some drone strikes against the United Arab Emirates (UAE), a move that pushed crude oil prices higher, with Brent soaring to $114.

There is a risk that the war between the two sides will restart, which will push energy prices higher in the coming days or weeks.

Such a move would lead consumer prices in the US and other countries. The most recent data showed that the headline consumer price index rose from 2.3% in February to 3.3% in March.

As a result, the Federal Reserve and other central banks may decide to maintain higher interest rates in the coming months. The European Central Bank (ECB) and the Bank of England (BoE) have hinted to deliver a hike in June. Similarly, under Kevin Warsh, the Fed may decide to hike rates as inflation rises.

Gold price has remained under pressure despite the ongoing Central Bank of Turkey (CBRT) purchases. Other top central banks like the Russian, Chinese, and Azerbaijani have also continued to buy gold as they diversify from the US dollar. 

On the other hand, third-party data shows that top gold ETFs like the GLD and IAU have continued having outflows this year. In contrast, spot Bitcoin ETFs have added assets in the past two consecutive months, while the VOO and SPYM ETFs have added over $75 billion in assets. That is a sign that investors are moving from gold to other assets.

Gold price technical analysis 

XAU price chart | Source: TradingView

The daily chart shows that gold has slumped in the past few months as investors question its safe-haven appeal. It has slumped from a record high of $5,600 in January to $4,537.

XAU recently attempted to rebound and faced a substantial resistance level at $4,888. It has moved below the 50-day and 100-day Exponential Moving Averages (EMA). 

Gold has also slumped below the Supertrend indicator, a sign that bears remain in control. At the same time, the Relative Strength Index (RSI) has dropped from the extreme overbought level of 80 to the current 38. The Percentage Price Oscillator has moved below the zero line. 

Therefore, gold will likely continue falling, potentially to the year-to-date low of $4,108, which is about 9.40% below the current level. A move above the key resistance level at $4,888 will invalidate the bearish outlook and point to more gains.