Gold Forecast: Downside risks remain intact for XAU/USD amid a Bear Cross

Gold returns to the red in Asia on Friday, following a temporary short-covering rally above $4,200 seen a day ago. The bright metal is set to book a second consecutive weekly loss, having tested the year-to-date (YTD) lows near the $4,000 threshold earlier in the week.

Gold: Sellers likely to retain control

Despite the market optimism, following US President Donald Trump’s cancellation of powerful strikes on Iran and amid renewed peace deal hopes, fresh hostilities between the United States (US) and Iran in the Strait of Hormuz once again thwart the odds of a deal and lift the haven demand for the US Dollar (USD) at the expense of Gold.

In the latest developments, US forces shot down two Iranian one-way attack drones as Tehran appeared to attempt to strike commercial ships transiting the strait of Hormuz, a US official told Reuters.

Citing the Islamic Revolutionary Guard Corps (IRGC), the Iranian state media said an explosion was heard in the south of the country a short while ago were related to a confrontation with a “violating vessel” attempting to pass through the Strait of Hormuz.

Late Wednesday, Trump said that an agreement with Iran was imminent and could be signed “maybe over the weekend in Europe”; he said the Strait of Hormuz would open “as soon as we sign” the documents of the “great settlement”.

This came after he cancelled strikes because of the “great settlement” reached with Iran; he said a military operation to take Kharg would be off the table “if we sign this agreement”.

However, a spokesman for Iran’s Foreign Ministry was quick to clarify that Iran has not yet made a final decision on an agreement with the US, per Reuters.

Meanwhile, the Israeli prime minister’s office posted on X on Thursday that Israel is ‘not a party’ to the US memorandum of understanding with Iran.

These hostilities cast doubt on a potential US-Iran peace deal, fuelling a rebound in Oil prices from two-month lows and checking the Gold price turnaround.

Additionally, the non-yielding bullion continues to bear the brunt of the hot US inflation reading, which confirmed a 25-basis-point (bps) Federal Reserve (Fed) interest rate hike in December, according to the CME Group’s FedWatch Tool.

Next of note for the bright metal remains the preliminary readings of the University of Michigan (UoM) Consumer Sentiment and Inflation Expectations due later this Friday, which have a significant impact on the USD trades.  

Further, the Mideast developments will continue to play a pivotal role in the sessions ahead. However, Gold could be at risk of repositioning trades ahead of next week’s Fed policy decision, the first one under new Chairman Kevin Warsh.

Gold’s technical setup on the daily chart keeps the bearish outlook in the near-term, as the metal is out of the oversold territory.

Gold price technical analysis: Daily chart

In the daily chart, XAU/USD trades at $4,203.06, maintaining a bearish near-term bias as spot holds well beneath all major moving averages. The 21-day, 50-day, 100-day and 200-day simple moving averages (SMAs) all hover above the market, reinforcing an environment of persistent overhead supply, while the Relative Strength Index (14) sits around 35, suggesting weak but not yet oversold downside momentum that leaves room for further pressure if sellers stay in control.

Adding credence to the bearish potential, the 21-day SMA closed below the 200-day SMA on Thursday, confirming a Bear Cross.

On the topside, initial resistance is aligned with the 21-day SMA near $4,430.71, followed closely by the 200-day SMA at $4,450.32, forming a first key cap where recovery attempts could stall. Further up, the 50-day SMA around $4,586.65 and the 100-day SMA near $4,768.31 mark deeper recovery hurdles, and the broader bearish tone is likely to persist while XAU/USD remains entrenched below this layered resistance stack.

(The technical analysis of this story was written with the help of an AI tool.)