Gold Prices Drop Below $4,500, Gold Prices May Fall to $4,360 This Week

TradingKey - During the early Asian session on May 18, gold prices ( XAUUSD) continued their downward trend from last week, falling for five consecutive trading days. Prices dropped below $4,500 during the session, hitting a low of $4,480.54. It is currently trading at $4,497.11, down approximately 1% from last Friday.

The primary reason for this decline in gold is the persistent rise in U.S. inflationary pressures. Both the latest CPI and PPI data exceeded market expectations. Consequently, the market now views the probability of a Fed rate cut this year as nearing zero, while raising the odds of a rate hike by year-end to 40%.

At the same time, uncertainty regarding the situation between the U.S. and Iran continues to impact market trends. Latest reports show that on Sunday, Trump warned on social media, 'For Iran, time is running out. They had better act fast, or they will have nothing left.' These remarks have reignited market fears of a further escalation in tensions, bringing crude oil supply risks near the Strait of Hormuz back to the forefront of trading focus.

Influenced by this news, at Monday's market open, WTI spot oil prices gapped higher to $101.74 and maintained an upward trajectory during the session. As of press time, WTI crude reached a high of $104.37, an increase of nearly 3%. Brent crude spot prices similarly opened higher and continued to rise, reaching an intraday peak of $108.59, a gain of over 2%.

WTI Crude Spot Price Daily Chart, Source: TradingView

Analysis indicates that rising oil prices stemming from the Iran conflict are fueling inflation concerns. This has caused gold to lose some of its appeal as an inflation hedge in the short term, as higher interest rate expectations increase the opportunity cost of holding non-yielding assets, exerting further downward pressure on gold prices.

Gold Price Daily Chart, Source: TradingView

From a technical perspective, the candlestick structure on the gold daily chart has formed a head-and-shoulders top pattern. This signifies that market sentiment has shifted to the bearish side, with short-term bearish momentum strengthening significantly; the downward trend is likely to persist this week. The initial target is a break below the starting point of the left shoulder, which would bring prices down to around $4,360.

Regarding technical indicators, the moving average system shows that gold prices clearly broke below the 144-day moving average last Friday. This indicates that the medium-to-long-term bullish trend has been compromised, further bolstering short-selling momentum in the market.

Meanwhile, the Relative Strength Index (RSI) is currently hovering around 37.10, reflecting bearish sentiment. As it has not yet entered oversold territory, there is still room for gold to decline further.

Currently, gold is likely to sustain its decline this week. With the breach of the critical $4,500 support level, the downside has opened up further. The primary downside target is to test the significant support at $4,360. Should this level fail to hold, gold may clear the path for a retreat toward $4,100.

In terms of operations, it is recommended to focus on selling on rallies.

Support levels: 4360, 4100

Resistance levels: 4555, 4600