- Gold tests $4,000 amid fresh selling pressure
- Risk of further losses amid a hawkish Fed and AI boom
- What will it take for gold’s fortunes to improve?
After a brief stabilization, came under renewed selling pressure on Tuesday, hitting a fresh eight-month low of $3,942.15 before rebounding back above $4,000. Nevertheless, the momentum indicators continue to suggest a steadying in the short-term picture, with the RSI flatlining just above its oversold threshold and the stochastics climbing out of their respective oversold region.
If the price manages to hold above the crucial $4,000 mark, a recovery towards $4,100 is likely. But the real challenge will be to move past the $4,200 level and reclaim the 20-day simple moving average (SMA). Yet, the turning point for the bulls will only come about if they succeed in breaking above the descending trendline. A further leg up towards $4,300 would then switch the medium-term outlook from bearish to neutral.
However, far from being eliminated, downside risks to gold still linger. The Fed’s hawkish pivot has elevated short-term Treasury yields and the to more than one-year highs, reducing non-yielding gold’s appeal. This alone has more than offset the potential boost that gold would have benefited from the decline in the dollar from reduced geopolitical risks following the US-Iran deal, which mostly brought an end to the hostilities in the Middle East.
Moreover, risk appetite has improved markedly from the reopening of the Strait of Hormuz and subsequent plunge in , further weighing on the precious metal. But geopolitics and Kevin Warsh’s steering of the Fed towards a more hawkish path aren’t the only thorn in the side of gold. The AI frenzy is likely responsible for diverting some flows away from gold and into the AI trade, as chip stocks soar on expectations of booming revenue growth.
Combined with the usual soft physical demand during the summer months, gold’s woes may not be over anytime soon. If there’s a decisive break below $4,000, there could be some support around $3,880, followed by $3,750, both of which were congested regions in 2025. Breaching them would expose the 50% Fibonacci of the long-term uptrend that began in September 2022 and peaked in January this year. This crucial level sits just above $3,600.
Although central bank demand continues to provide underlying support to gold, the shift in expectations from to hikes has been the single most important drag on gold. Hence, a meaningful rebound is unlikely before the Fed stops signalling tighter policy.
