Gold's Upside May Remain Limited

Summary:

A potential U.S.-Iran agreement could ease concerns over global energy supplies and provide gold with an opportunity to rebound. However, the policy stance of the incoming Fed Chair may limit the scope of any recovery.

SELL XAUUSD

EXP

PENDING

4367.95

Entry Price

4102.84

4421.22

4338.02 +118.40 +2.81%

Pips

PENDING

4102.84

Exit Price

4367.95

Entry Price

4421.22

Fundamentals

Gold opened higher on Monday with a gap up after the United States and Iran reached a peace agreement aimed at ending months of military conflict. U.S. President Donald Trump announced that he had authorized the reopening of the Strait of Hormuz to free navigation and simultaneously lifted the maritime blockade imposed on Iran.

Iran also confirmed that an agreement had been reached, although both sides will still need to conduct further negotiations regarding specific commitments. The easing of global energy supply concerns has quickly cooled inflation expectations that had previously been fueled by rising oil prices, providing gold with an opportunity to rebound.

However, market attention is now shifting to this week's Federal Reserve policy meeting, particularly as the Fed is set to welcome a new chair, whose arrival could bring a fundamental overhaul to the central bank's communication framework.

At present, the market has very limited understanding of Kevin Warsh's policy stance. Investors remain unable to assess how he would respond to key economic developments such as surging employment growth and accelerating inflation, nor can they accurately gauge his approach to interest-rate management. This lack of transparency is not accidental, but rather a reform direction actively advocated by Warsh himself.

Warsh has long criticized the Federal Reserve's previous communication practices. He argues that excessively frequent official remarks have contributed to policy mistakes and have led the Fed to intervene too deeply in financial markets and economic activity, disrupting the market's natural adjustment process.

In short, unlike the previous leadership's highly transparent and communication-intensive approach, incoming Fed Chair Warsh favors significantly reducing official commentary and weakening forward guidance. Such a shift could fundamentally change the market's traditional framework for interpreting Fed policy and may encourage investors to remain cautious.

As a result, while gold may continue to rebound in the near term, the magnitude of any upside could remain limited.

Technical Analysis

On the 4-hour chart, gold rebounded after the opening but has since returned to the descending channel and is currently hovering near the lower boundary. Whether it can stabilize and extend the rebound remains uncertain.

The key resistance level lies at the 23.6% Fibonacci retracement level. Only a break above this level would open the door for further upside.

On the downside, the key support level is located at 4,262.92. This level coincides with the lower boundary of the descending channel and the price gap created at the opening, making it a strong near-term support. A break below this level would significantly increase the likelihood of a gap fill.

From the Ichimoku perspective, the Base Line is moving sideways while the Conversion Line has crossed above it, showing clear bullish momentum. Meanwhile, the current price remains above both lines and has moved significantly away from them, suggesting that the current rally may be approaching exhaustion and that downside risks could gradually dominate afterward.

In the ADX indicator, the ADX line is rising, indicating stronger upward momentum. However, the ±DI lines are converging, with the -DI line moving noticeably higher and approaching the 9.5 level. This suggests that bearish momentum is gradually building and that gold could eventually resume its decline. Gold's Upside May Remain Limited_1

Trading Recommendation

Direction: Short

Entry Price: 4367.95

Target Price: 4102.84

Stop Loss: 4421.22

Support Levels: 4262.92, 4,151.27

Resistance Levels: 4408.94, 4531.83

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