Middle East Conflict Fuels Inflation Concerns, Gold Still Has Upside Potential After Short-Term Correction

Summary:

The escalation of tensions in the Middle East has pushed energy prices higher, reigniting inflation concerns and strengthening expectations that the Federal Reserve may maintain higher interest rates or adopt a more restrictive stance. As a result, gold prices fell more than 2% on Thursday. However, as the U.S. dollar weakened and safe-haven demand returned, gold recovered above $4,050 on Friday. Technical indicators suggest that the current correction may be nearing completion, with gold still likely to extend its rebound.

BUY XAUUSD

EXP

TRADING

4057.40

Entry Price

4398.00

3950.00

4060.40 +10.88 +0.27%

0.0

Pips

Flat

3950.00

Exit Price

4057.40

Entry Price

4398.00

Fundamental

Gold prices dropped sharply on Thursday, falling more than 2%, mainly due to the escalation of Middle East tensions and rising energy prices. The market began reassessing the Federal Reserve’s future policy outlook.

As higher energy costs could increase inflationary pressures, investors reduced expectations for rapid Fed rate cuts and pushed U.S. Treasury yields higher, creating additional pressure on non-yielding assets such as gold.

However, as market sentiment stabilized, gold prices climbed back above $4,050 during Friday’s European trading session and reached a fresh intraday high. A modest decline in the U.S. dollar, combined with renewed safe-haven inflows, provided support for gold.

Currently, the market widely expects the Federal Reserve to keep interest rates unchanged at its upcoming meeting. However, the policy statement and comments from Fed officials could still signal a more hawkish or dovish stance. Any unexpected shift in policy expectations could trigger renewed market volatility.

Middle East Conflict Fuels Inflation Concerns, Gold Still Has Upside Potential After Short-Term Correction_1

Technical Analysis

From a technical perspective, gold encountered resistance near the 200-week moving average this week and experienced a sharp pullback after testing higher levels, indicating that short-term bullish positions have been partially unwound.

However, gold previously rebounded from the $3,959 area and broke above the Asian session high on Friday, suggesting that short-term corrective pressure is easing and the broader bullish structure remains intact.

Currently, the $4,050 area has become an important short-term support zone. If prices continue to hold above this level, gold could extend gains toward resistance levels at $4,104, $4,166, and $4,180.

From a medium-term perspective, the current decline appears to be a technical correction within an ongoing uptrend rather than a trend reversal. With investors continuing to focus on safe-haven demand and global economic uncertainty, gold still has further upside potential. The short-term target is around $4,300, while further gains could extend toward the $4,400 area.

Overall, although the Middle East conflict has pushed energy prices higher and temporarily strengthened expectations of prolonged Fed policy tightening, creating pressure on gold, the current decline appears more consistent with a technical adjustment within an upward trend. As long as gold holds the $3,950-$3,980 support zone, the bullish structure remains valid, with further upside potential toward $4,300 and even $4,400.

Trading Strategy

Direction: Buy

Entry Price: 4050

Target Price: 4398

Stop Loss: 3950

Valid Until: August 23, 2026, 23:55

Support Levels: 4052, 4016, 3984

Resistance Levels: 4104, 4166, 4180

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