Gold began the week on the defensive while Dollar strengthened broadly across currency markets, as the Middle East conflict has entered its second week with no meaningful signs of de-escalation. The metal is now showing signs of fragility near 5,000 psychological level, which is significant due to positioning in the options market. A break below 5000 could trigger a “cascade” of sell-stops, rapidly accelerating the move towards 4,400.
Historically, geopolitical crises tend to support both Dollar and Gold simultaneously as investors seek protection from uncertainty. However, the specific characteristics of the current conflict are shifting the balance toward Dollar.
The fighting has effectively disrupted energy flows through the Strait of Hormuz, one of the world’s most critical oil shipping routes. The resulting energy shock has already pushed WTI crude oil above the 100 mark, creating a powerful inflationary impulse for the global economy. Supply disruptions of this scale typically lead to higher energy prices, which quickly filter through global production chains. Rising transportation costs, manufacturing inputs, and consumer prices can all contribute to renewed inflation pressure.
As energy costs rise, the narrative of imminent policy easing becomes less certain. Instead, investors are once again considering the possibility that interest rates may need to remain elevated for longer than previously expected. This shift is particularly supportive for Dollar.
Gold’s strong performance in the last two years was in part driven by declining real interest rates as central banks moved toward policy easing. When real yields fall, the opportunity cost of holding non-yielding assets like Gold declines, making the metal more attractive. That environment is now potentially reversing.
Technically, outlook is unchanged that current fall from 5,419.02 is seen as the third leg of the corrective pattern from 5,598.38 record high. Risk will stay on the downside as long as 5,205.99 minor resistance holds. Break of 4,496.03 temporary low will resume the decline to 4,844.91 support. Firm break there will solidify this case and target 4,403.34 support next.
In the bigger picture, Gold is seen as in consolidations to the whole up trend from 1,614.60 (2022 low). The pattern from 5,598.38 could extend to as low as 38.2% retracement of 1,614.60 to 5,598.38 at 4,076.57, or a bit lower to 4,000 psychological level, before bottoming.
