Gold tumbles as Oil shock fuels US Dollar rally and Fed hike bets

The price of gold slipped by nearly 1.49% on Monday as the US Dollar strengthened, driven by tensions in the Middle East and rising energy costs. At press time, gold was trading at $4,163 following a high of $4,217. West Texas Intermediate (WTI) crude oil prices surged more than 2%, reaching $93.69, boosted by Houthi attacks on Saudi Arabia, Iran firing ships in Hormuz, and Russia-Ukraine clashes, despite an alleged ceasefire by the US.

Although the US and Iran reportedly agreed to Iran's seven conditions for a cease-fire, Iran maintains that Hormuz will only reopen if its demands are met, keeping US Treasury yields high, with the 10-year note yield at 5.242%. Meanwhile, the US Dollar Index (DXY), which gauges the greenback's performance versus six other currencies, rose 0.3% to 102.56.

Market projections suggest a Federal Reserve rate hike, but not at the October meeting. The probability of a 0.25% Fed funds rate increase stands at 20% for October, increasing to nearly 90% by December. Cleveland Fed President Beth Hammack emphasized the need for higher rates as inflation spreads, projecting one of the highest neutral rate rates within the Federal Open Market Committee (FOMC).

Traders are now focusing on Fed speakers, particularly Fed Chair Kevin Warsh, and the release of US inflation data, including the Consumer Price Index (CPI) on Wednesday and Producer Price Index (PPI) on Thursday. Gold's rally halted near $4,200, failing to stay above the level; it fell towards the day's low at $4,150 before settling at the current price.

Despite gold's current near $4,100 level, the market structure of lower highs and lower lows indicates that $4,000 could be tested in the near future. Momentum turned slightly bullish, with the Relative Strength Index (RSI) increasing but remaining below its 50-neutral level. For a bearish turnaround, gold needs to fall below the psychologically significant $4,150 level, opening the door for a move to $4,100, followed by the July 29 cycle low of $3,996, and the $4,000 level below.

If XAU/USD recaptures $4,200, a move toward the 100-day Simple Moving Average (SMA) at $4,256 is possible, followed by the 50-day SMA at $4,337, and the 200-day SMA at $4,528.