Gold (XAU/USD) struggles to capitalize on a modest recovery from its lowest level since March 30, touched earlier this Monday, albeit it holds steady below the $4,550 level through the early European session. The US Dollar (USD) buying remains unabated in the wake of persistent geopolitical uncertainties. Furthermore, rising Crude Oil prices fuel inflationary concerns and bolster bets for a more hawkish US Federal Reserve (Fed), which lends additional support to the USD and contributes to keeping a lid on the non-yielding bullion.
In the latest developments surrounding the Middle East crisis, a drone strike caused a fire at the Barakah Nuclear Power Plant in the United Arab Emirates (UAE). Adding to this, Saudi Arabia said that it intercepted three drones launched from Iraq and also warned that it would take the necessary operational measures to respond to any attempt to violate its sovereignty and security. Furthermore, US President Donald Trump warned that Iran must get moving fast toward a deal or face severe consequences. In a post on Truth Social, Trump wrote that the “clock is ticking” and that there “won’t be anything left” if action is not taken soon, adding that “time is of the essence.”
This raises the risk of a further escalation of tensions in the Middle East and dampens hopes for a US-Iran agreement on the back of stalled peace talks, underpinning the USD’s reserve currency status. Furthermore, the US blockade of Iranian ports and the effective closure of the Strait of Hormuz pushed crude oil prices to a two-week high, fueling expectations for an interest rate hike by the US central bank in 2026. According to the CME Group’s FedWatch Tool, traders are currently pricing in over a 50% chance that the Fed will raise borrowing costs by the end of this year. The outlook remains supportive of elevated US Treasury bond yields, favoring the USD bulls and capping the Gold price.
The aforementioned fundamental backdrop suggests that the path of least resistance for the XAU/USD pair is to the downside. Hence, any further move up is more likely to get sold into and remain capped in the absence of any relevant market-moving macro data from the US on Monday. Moving ahead, the market focus remains glued to the FOMC Minutes on Wednesday, which will be looked for fresh clues about the central bank’s policy outlook. Traders this week will also monitor the release of global flash PMIs. Moreover, the incoming geopolitical headlines might continue to inject volatility into financial markets, which, in turn, will drive the USD demand and influence the Gold price.
Meanwhile, discounts in India jumped to a record last week, while strong investment demand for physical bullion keeps Chinese premiums firm over global benchmark prices. This, however, might do little to act as a floor for Gold prices as rising Iran tensions, inflationary concerns, and hawkish Fed bets might continue to support the USD.
XAU/USD daily chart
Gold seems vulnerable; bears retain control while below 100-day SMA
Against the backdrop of last week’s failure near the 100-day Simple Moving Average (SMA) hurdle, acceptance below the $4,500 psychological mark will suggest that the broader downtrend is gaining momentum. Moreover, the Relative Strength Index (RSI) is near 40, and a negative Moving Average Convergence Divergence (MACD) reading both hint at subdued buying interest. This validates the near-term bearish bias for the Gold price.
Meanwhile, immediate focus stays on the broader support area anchored by the 200-day SMA at $4,352.59, as a sustained break beneath this zone would likely expose gold to deeper corrective losses in the sessions ahead. On the topside, the 100-day SMA at $4,790.55 is the first meaningful resistance that bulls would need to reclaim to ease the current downside pressure.
(The technical analysis of this story was written with the help of an AI tool.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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