Gold prices extended their decline during Asian trading hours on Thursday, with spot gold hovering near $5,150 after falling for two consecutive sessions. The precious metal had previously reached a cyclical high driven by safe-haven demand, but recent shifts in market dynamics have led to a notable pullback.
One key factor behind gold's adjustment is the sharp volatility in energy markets. International crude oil prices have risen steadily, with WTI crude climbing above $92 per barrel and posting intraday gains of over 6%. Rising energy costs often signal potential inflationary pressures ahead, altering market expectations for monetary policy. When inflation risks increase, the Federal Reserve is more likely to maintain higher interest rates, which puts pressure on non-yielding assets like gold.
At the same time, a stronger U.S. dollar and rising Treasury yields have reduced gold's appeal. Gold typically moves inversely to the dollar, and a stronger greenback makes dollar-denominated gold more expensive for global investors, dampening demand. The recent uptick in U.S. bond yields reflects a market reassessment of inflation and interest rate trajectories, further weighing on gold prices.
Market surveys indicate that conflict in the Middle East continues to escalate. Iran has announced joint operations with Lebanon's Hezbollah targeting sites in Israel, Jordan, and parts of Saudi Arabia. Meanwhile, Bahrain's Interior Ministry reported that Iran launched an attack on a fuel storage facility in Muharraq Governorate. Rising regional tensions have triggered volatility in energy markets and prompted investors to reassess global economic and energy supply risks.
However, unlike previous episodes, gold has not fully benefited from geopolitical risk-driven safe-haven demand. This is because rising energy prices are boosting global inflation expectations, leading markets to reevaluate the policy paths of major central banks. Investors are concerned that if inflation resurges, the Fed may have to keep interest rates elevated for longer.
In response to energy market pressures, major economies have attempted to stabilize oil prices by releasing strategic reserves. The International Energy Agency announced it would release 400 million barrels of strategic petroleum reserves, one of the largest coordinated actions in its history. The United States also plans to release approximately 172 million barrels from its emergency reserves to ease price pressures. However, markets generally believe these measures will not fully offset supply risks in the short term, keeping oil prices firm.
On the macroeconomic front, the latest U.S. inflation data largely met expectations. The Consumer Price Index rose 0.3% month-over-month and 2.4% year-over-year in February. Core CPI, which excludes food and energy, increased 0.2% monthly and 2.5% annually. These figures suggest that while inflation has retreated from earlier highs, it remains at a moderate level. Market expectations now point to only one Fed rate cut this year, significantly lower than previous forecasts for more accommodative policy. Reduced expectations for rate cuts have diminished gold's interest rate advantage, as the opportunity cost of holding non-yielding gold rises in a high-rate environment.
From a technical perspective, gold's daily chart shows that the previous uptrend has entered a correction phase. After hitting a cyclical high, prices have retreated and are now testing key support near $5,100. A break below this level could lead to further declines toward $5,050 or even the psychological $5,000 mark. Resistance levels are seen near $5,200 and $5,280, areas that previously saw concentrated trading activity. On the 4-hour chart, the short-term trend shows a volatile downward structure, with moving averages beginning to flatten, indicating weakening bullish momentum. The RSI indicator has retreated from overbought territory to neutral levels, suggesting the market is digesting the prior rally. If prices stabilize above $5,180, a retest of the $5,200 zone may occur. However, a break below $5,100 could extend the short-term correction.
In summary, the gold market is currently influenced by multiple competing factors. While escalating Middle East tensions provide some safe-haven support, rising energy prices are boosting inflation expectations and reducing expectations for Fed rate cuts. A stronger dollar and higher Treasury yields are further reducing gold's attractiveness. In the near term, gold's direction will depend heavily on three key factors: energy price trends, U.S. inflation data, and signals from the Fed. If inflation remains higher than expected, gold may face further downward pressure. However, if geopolitical risks intensify, safe-haven flows could still push prices higher.