Gold’s near-5% collapse last week has extended into the new week, with selling pressure accelerating as investors continue to reprice the global interest rate outlook. The precious metal is now approaching a critical test, with a retest of the March low near $4,100 increasingly likely and the psychologically important $4,000 level beginning to come into view.
The primary catalyst behind the latest decline was Friday’s stronger-than-expected US nonfarm payrolls report. The data reinforced the view that the US labor market remains resilient. As a result, any lingering expectations for near-term Fed rate cuts have largely disappeared. Instead, markets are increasingly focused on the possibility that policymakers may need to tighten further later this year as higher energy prices feed through to inflation.
That shift in expectations has had a direct impact on Gold. Fed funds futures are now pricing a significant probability of at least one additional rate increase before year-end. Treasury yields have climbed, while Dollar has regained strength, with DXY moved back above 100. For a non-yielding asset such as Gold, rising real yields significantly increase the opportunity cost of holding bullion, encouraging institutional investors to rotate back into cash and fixed-income assets.
The current environment remains unfavorable for Gold unless there is a meaningful change in the macro backdrop. One potential catalyst would be a substantial easing of tensions between the United States and Iran that lowers oil prices and reduces inflation concerns. Without such a development, markets are likely to maintain a higher-for-longer view on monetary policy, keeping pressure on precious metals.
Technically, the outlook has deteriorated notably. Gold’s decline from 4,899.24 resumed after decisively breaking below 4,366.22 support. More importantly, prices have now fallen through the lower boundary of a near-term falling channel, suggesting downside momentum is accelerating rather than stabilizing.
As long as the 55 4H EMA (now at 4,463.83) caps rebounds, the bias remains firmly to the downside. Immediate target comes at 100% projection of 4,773.50 to 4,366.22 from 4,595.14 at 4,187.86. A break below that area would quickly shift attention toward the March low near 4,100.
Yet the bigger picture is more nuanced than the current selloff suggests. While markets are increasingly pricing tighter policy, the global economy is not experiencing a demand-driven inflation boom. Instead, it is facing a stagflationary environment characterized by weak growth and supply-driven inflation pressures. That distinction matters because it limits how aggressively central banks can tighten without causing deeper economic damage.
ECB is widely expected to raise rates this week, and Fed may yet tighten again later this year. However, the scope for a prolonged tightening cycle appears limited. The moment growth deteriorates more sharply or labor market weakness emerges, policymakers would likely be forced to pause or reverse course.
For that reason, the zone between 38.2% retracement of 1,614.60 (2022 low) to 5,598.38 at 4,076.57 and structural support at 3,993.73 would likely hold. Strong buying interest is expected there to retain the long term up trend.
However, decisive break below 4,000, however, would suggest that Gold is no longer correcting within a bull market but beginning a much deeper trend reversal.
