$4,200: Gold sell-off resumes as this critical support cracks; where next?

• Gold kicks off the Nonfarm Payrolls week negatively, threatening the $4,200 level.
• US Dollar sits at three-month highs on renewed US-Iran risks and Fed rate-hike bets.
• Gold teases lower boundary of the falling wedge near $4,200 amid bearish daily RSI.

Gold is falling hard at the start of the US Nonfarm Payrolls (NFP) week on Monday, down roughly 2% as it challenges a critical support near the $4,200 level.

Gold has snapped the previous rebound, crushing the earlier danger zone around $4,240, as renewed geopolitical tensions between the United States (US) and Iran prop up Oil prices, revive inflation fears, and support the US Dollar (USD) alongside US Treasury bond yields.

Over the weekend, Iran said it was awaiting a definitive US response to a seven-day proposal to reopen the strait and other demands it has put on the table, and that it won’t soften its conditions.

Axios reported that US President Donald Trump is said to resume talks with Iran this week, despite rejecting the latest Iranian proposal to reopen the Strait of Hormuz.

Trump also said that he believes the war with Iran will be won “very soon,” adding that additional military strikes before the midterm elections are possible, per Fox News.

Aggravating Middle East tensions, Saudi Arabia’s capital, Riyadh, came under attack from Houthi militants in Yemen on Saturday. These geopolitical risks help keep oil prices elevated and inflation risks alive.

Despite the potential weekly decline, Gold is attempting to regain $4,300 on its road to recovery amid profit-taking.

This, combined with increased bets on an October US Federal Reserve (Fed) interest rate hike, provides additional legs to the USD uptrend, spelling doom for the USD-sensitive and yieldless Gold.

Markets are pricing in a 66% chance of a rate hike in October, according to CME Group’s FedWatch Tool.

Looking ahead, potential US-Iran talks and Middle East developments will remain the main driver for Gold amid a data-light US economic calendar. Gold traders also gear up for the US labor data this week, which will start trickling in from Tuesday, culminating with the all-important NFP report Friday.

Speeches from Fed policymakers will also be closely scrutinized after the Fed’s hawkish outlook.

All in all, risks appear skewed to the downside for Gold amid re-ignition of Iran risks and increased hawkish Fed expectations.

In the daily chart, XAU/USD trades at $4,200.00, extending its corrective phase with a clear bearish bias as it holds below the 100-day simple moving average (SMA) at $4,299.28 and the 50-day SMA at $4,321.41. The price also remains capped beneath the 21-day SMA at $4,344.16 and the longer-term 200-day SMA at $4,540.68, reinforcing a downside-skewed structure, while the Relative Strength Index (14) at 38.82 hints at weakening momentum rather than outright oversold conditions.

On the topside, initial resistance emerges at the 100-day SMA near $4,299.28, followed by the 50-day SMA at $4,321.41 and the descending trend-line break level around $4,327.36, with the 21-day SMA at $4,344.16 forming a dense supply zone before the prior trend-line start at $4,519.20 and the 200-day SMA at $4,540.68. On the downside, the immediate focus sits on the psychological $4,200.00 area, the lower boundary of the falling wedge, with the underlying upward support trend line marked by $3,998.89 and $3,990.07 likely to act as a structural floor if selling pressure deepens.