Gold is declining for the second day in a row, returning to the significant support level of $4,124 per ounce. The reason for this, paradoxically, ties back to oil prices.

The resurgence of attacks on vessels in the Strait of Hormuz has pushed oil prices higher, reigniting inflationary concerns and, with them, the probability of a rate hike from the Fed. For non-yielding gold, rising rate expectations are a negative factor.

Understanding the mechanics of this connection is crucial for interpreting the current gold market. A laden gas tanker was hit by a projectile off the coast of Oman, and Iran reportedly launched at least two missiles at commercial vessels in the strait, according to Axios. In previous times, such escalations would have automatically pushed gold up as a safe-haven asset. However, a different logic is at play now. The attacks increase oil prices; expensive oil means higher inflation, and high inflation forces the Federal Reserve to keep rates elevated. As a result, geopolitical tension, contrary to the classical scenario, works against gold via interest rates rather than supporting it through safe-haven demand.

Nonetheless, the metal is holding within a relatively narrow range, and the decline is not catastrophic. This suggests that investors are adopting a wait-and-see stance ahead of the Fed's upcoming rate forecasts, to be released later this week. It is worth noting that gold has already experienced ups and downs based on expectations of monetary policy. Initially, it plummeted sharply due to the firm stance of the new chairman Kevin Warsh, and then rebounded following last week's weak employment data, which weakened tightening expectations. This uncertainty surrounding the Fed's next moves is keeping the metal in a sideways pattern.

Silver is losing 1.4% today, trading at $61.21, while platinum and palladium are also in the red; the dollar index has strengthened slightly.

Regarding the current technical picture of gold, buyers need to reclaim the nearest resistance at $4,186. This will allow them to target $4,249, above which it will be quite challenging to break through. The furthest target will be around $4,304. In the event of a drop in gold prices, bears will attempt to regain control of $4,124. If this is achieved, a breakout of this range will deal a serious blow to the bulls' positions and drive gold down to a low of $4,062, with the potential to reach $4,008.