An analyst from Forex.com stated on Monday that gold prices have fallen below their 200-day moving average. Should US inflation pressures exceed expectations this week, the precious metal could test a major support level at $4,000 per ounce.

Fawad Razaqzada noted that the technical outlook for gold has deteriorated significantly following last week's sell-off. The metal consistently failed to hold above the $4,500 level, increasing the risk of a deeper correction. The breach of the 200-day moving average has further accelerated the downward momentum.

The analyst identified the next major support zone around $4,230 per ounce, near a long-term trend line. If sellers continue to dominate the market, a more pronounced decline is possible. Given the current market structure, a drop to the psychologically significant $4,000 level cannot be ruled out.

Short-term bearish sentiment is rising. The market is awaiting the US Consumer Price Index report due on Wednesday, with expectations for core inflation to rise 2.9% year-over-year.

Razaqzada added that another strong inflation reading could reinforce expectations that interest rates will remain elevated for an extended period. This scenario would likely provide further support for the US dollar while putting pressure on precious metals.

On Monday, gold futures traded within a narrow range after losing nearly 5% the previous week. Prices were pressured by robust US employment data, which boosted expectations for Federal Reserve rate hikes, despite a brief escalation in Middle East tensions that had initially threatened peace talks.

Although gold is traditionally viewed as a safe-haven asset during geopolitical conflicts, a potential peace agreement would reduce energy-driven inflation risks and ease pressure on central banks to maintain high interest rates. Gold does not yield interest, so a high-rate environment typically weighs on its price.

Entering June, as expectations for Fed rate hikes intensified, gold's decline accelerated, nearly erasing all its gains for the year. Spot gold edged up 0.04% on Monday to $4,329.83 per ounce, while spot silver traded at $68.171 per ounce.

Gold's Prospects Amid Rate Hike Expectations

However, a report from the World Gold Council on June 5th suggests a different perspective. Conventional wisdom holds that higher policy rates suppress gold by lifting real yields and strengthening the US dollar. Yet, historical data shows no consistent pattern for US Treasury yields, the dollar, and gold following rate hikes.

The World Gold Council argues that the actual implementation of a rate hike policy could, counter-intuitively, benefit gold. Historical probability indicates that gold shows positive outperformance in more than 50% of cases during rate hike cycles. Even after adjusting for the long-term average return (0.84%), the median gold return 21 days after a hike remains positive.

The Council cited several factors that could support gold, including rising resource nationalism, persistent inflation pressures, worsening fiscal strains in the US and other economies, and increased risks of policy missteps due to growing divisions within the Federal Open Market Committee, rising political pressure, and fears of repeated errors.

The World Gold Council also noted that during rate hike periods, the US dollar's influence on gold often outweighs that of interest rates. Structural demand from China, India, and central banks tends to be less sensitive to US interest rates, with central bank purchases potentially continuing to provide a floor for gold prices.

The Council issued a warning regarding the vulnerability of risk assets, stating that for equity markets, interest rate hikes could be the final trigger for a downturn. In recent years, even modest increases in long-term US Treasury yields have repeatedly disrupted short-term stock market rallies.