Gold prices enter the new week in a highly vulnerable position. On Monday, the precious metal hit its lowest level since March 30, dropping to around $4,480.00, before attempting a tentative recovery to the $4,560.00 area. Investors are on edge, assessing the shocking inflation data from the US and the subsequent hawkish reshaping of expectations concerning the Federal Reserve's rate, which put enormous pressure on an asset that does not generate interest income.
Fundamental Background: Escalation and Trump's Ultimatums, Hawkish Fed Turn
The weekend was marked by a new spike in tensions in the Middle East, which, contrary to expectations, did not lead to an increase in safe-haven purchases of gold. A drone strike caused a fire at the Barakah nuclear power plant in the United Arab Emirates, while Saudi Arabia intercepted drones launched from Iraq.
US President Donald Trump issued a stern ultimatum. In his post on Truth Social, he warned that "the clock is ticking," and if Iran does not immediately sign a peace agreement, there will be "nothing left." This rhetoric has completely undermined hopes for a quick diplomatic resolution, maintaining the maritime blockade of Iran and the effective closure of the Strait of Hormuz.
While geopolitics provides the backdrop, the main driver of the sell-off has been the US macroeconomic data released last week, which exceeded even the most ambitious expectations. Year-on-year CPI inflation accelerated to 3.8%, the highest level since May 2023; the producer price index (PPI) soared to 6.0% (year-on-year), marking the strongest growth since 2022 and significantly exceeding forecasts. The yield on 10-year US Treasury bonds reacted immediately, jumping last Friday to an annual high of 4.6%. Retail sales in the US increased by 0.5% in April, in line with expectations and signaling the resilience of consumer spending even amid high rates.
This "inflation shock" has fundamentally altered the landscape of monetary policy. Markets immediately recalculated probabilities, completely excluding expectations for interest rate cuts in 2026. The probability of a Fed rate hike by the end of the year has surpassed 50%. The CME FedWatch tool indicates that traders are pricing in not just a pause but a real chance for policy tightening in 2027, representing a colossal shift in just a few weeks.
An additional factor putting pressure on gold has been the Senate's confirmation of Kevin Warsh as the new Fed Chair. Warsh, known for his support of a dovish stance, balance-sheet reduction, and stricter inflation control, officially replaced Jerome Powell after Powell's term expired. His appointment cements expectations for the continuation of restrictive policy for a longer period than previously anticipated.
Brief Technical Analysis
From a technical perspective, gold's price is at a critical juncture. The XAU/USD pair is supported by an important medium-term level of 4532.00 (EMA144 on the daily chart). The key level being tested now is the psychological mark of 4500.00, and a breakout of this level could lend greater confidence to buyers, pushing the price toward the resistance zone of 4643.00 (EMA200 on the 1-hour chart) to 4707.00 (EMA50 on the daily chart).
On the daily chart, the RSI (14) is hovering around 38–40 and approaching the oversold zone (below 30). This could indicate potential for a short-term technical bounce, but not a trend reversal. The OsMA histogram has crossed the zero (neutral) line from above, and the Stochastic is deepening into the oversold zone, confirming the escalating pressure from sellers and the absence of signs of an imminent turnaround.
Leading financial institutions are revising their short-term forecasts due to the hawkish turn from the Fed and noting that the correlation of gold with traditional "safe-haven" factors has been disrupted: the market is currently trading the "oil channel," where rising commodity prices amplify hawkish expectations for Fed rates rather than supporting the metal as a hedge against inflation.
Key Events
| Date | Event | Expected Impact |
|---|
Wednesday, May 20 | Release of FOMC minutes | Key trigger—will provide hints about the seriousness of hawkish sentiments within the Committee |
Wednesday, May 20 | Nvidia earnings report | Influence on global risk appetite |
Thursday, May 21 | Preliminary US PMI data (May) | Assessment of the resilience of the US economy amid high rates |
May/June | Developments regarding US-Iran negotiations and the opening of the strait | Main geopolitical trigger—any progress will be bullish for gold (via dollars), escalation will be bearish |
Conclusion
Gold is under powerful dual pressure. On one hand, the hawkish turn of the Fed—markets are now pricing in over a 50% probability of a rate hike by the end of the year—is pushing bond yields to new highs and strengthening the dollar. On the other hand, the geopolitical tension, which previously traditionally supported the "safe haven," is now working through the "oil channel," enhancing inflationary expectations and, consequently, pressure on the non-yielding asset. The critical zone of 4550.00–4500.00 has become the "zone of truth."
The technical picture and fundamental backdrop (hawkish Fed, strong dollar) indicate a high probability of a downward breakout. Investors should exercise extreme caution. The coming days will be decisive, with particular attention to the FOMC minutes on Wednesday.
