Gold – hit from both sides at once

Gold dropped to around $4,118 today, back near the lows it set earlier this month. What's unusual is that two forces are pulling it down at once — and together they strip away both reasons traders normally hold gold.

The first is peace. With the Iran war winding down, the fear that drives buyers into gold is fading. The second is the Fed. It signaled potential rate hikes this year, and since gold pays no interest, higher rates make it less attractive than bonds or cash.

So gold lost its safe-haven bid and its inflation hedge in the same week. That's why it's down roughly 25% from its January peak.

But the picture isn't one-sided. Central banks have kept buying gold for 18 straight months, which puts a floor under the price. On Thursday, the US releases the PCE inflation report. A hot number would support more rate hikes and weigh on gold further. A soft reading could finally give it a reason to bounce.

Gold key levels: 

• Resistance: $4,200, then $4,260. 
• Support: $4,040, then $3,950.

Watching: Thursday's US PCE inflation report, the dollar, and progress on the Iran peace deal.

Risk Disclaimer: All research and/or forecasts above reflect the author's personal opinion and cannot be treated as trading advice. Born2trade is not responsible for any trading results based on any information in this article. Trading Forex and CFDs carries a high level of risk to your capital. You may lose all of your invested funds. Forex and CFD trading may not be suitable for all investors. Please ensure that you fully understand the risks involved and, if necessary, seek independent advice.

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