Gold slides back closer to $4,050 as Iran risks and Fed hike bets boost USD

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Gold (XAU/USD) opens with a modest bearish gap at the start of a new week and slides back closer to the $4,050 level during the Asian session.

Gold kicks off the new week on a weaker note as escalating US-Iran tensions underpin the USD.
Rising Oil prices revive inflation fears and lift Fed hike bets, further weighing on the commodity.
The focus now shifts to Fed Chair Kevin Warsh’s testimony and the latest US inflation figures.

Gold (XAU/USD) opens with a modest bearish gap at the start of a new week and slides back closer to the $4,050 level during the Asian session. A further escalation of tensions between the US and Iran, along with the closure of the Strait of Hormuz, lifts crude oil prices and revives inflation fears. This, in turn, bolsters expectations of elevated interest rates by the US Federal Reserve (Fed), which benefits the safe-haven US Dollar (USD) and drives flows away from the bullion.

The US unleashed a major round of strikes on Iran over the weekend, while Iran responded with missile attacks on US military bases in the Gulf. Adding to this, Iran’s Islamic Revolutionary Guard Corps (IRGC) fired at another commercial vessel in the Strait of Hormuz and announced the closure of the critical waterway. This adds a layer of uncertainty to global energy markets and triggers a fresh leg up in Crude Oil prices, fueling concerns about energy-driven inflationary pressures and reaffirming bets that the US central bank will raise borrowing costs.

According to the CME Group's FedWatch Tool, traders are currently pricing in a nearly 90% chance of a Fed rate hike by the end of this year. The outlook remains supportive of elevated US Treasury bond yields, assisting the buck to build on its bounce from over a one-week low, touched on Friday, and exerting downward pressure on the non-yielding Gold. The USD bulls, however, seem hesitant and opt to wait for more cues about the US central bank's policy path. Hence, the focus will be on Fed Chair Kevin Warsh's congressional testimony later this week.

Furthermore, traders will take cues from the release of the US Consumer Price Index (CPI) and the Producer Price Index (PPI), due on Tuesday and Wednesday, respectively. The crucial inflation figures will play a key role in influencing the near-term USD price dynamics and provide a fresh impetus to the precious metal. Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of the XAU/USD bears, suggesting that any move higher is more likely to be sold into and remain capped.

XAU/USD daily chart

Gold’s bearish technical setup backs the case for a further depreciation

From a technical perspective, the commodity remains well below the 200-day Simple Moving Average (SMA) and maintains a bearish bias within a downward-sloping parallel. Meanwhile, the Relative Strength Index (RSI) hovers near 40, and the Moving Average Convergence Divergence (MACD) histogram, although it has eased from recent highs, is mildly positive. This suggests only a modest downside momentum.

In the meantime, the first notable support is aligned with the $4,000 psychological mark ahead of the year-to-date low, around the $3,942 region. A convincing break below would expose the channel’s lower boundary, currently around $3,782.83, where buyers could attempt to stabilize the decline if selling pressure intensifies. On the topside, immediate resistance comes at the channel top near $4,291.51, with a break above this barrier needed to ease the current bearish tone. However, the 200-day SMA at roughly $4,494.65 stands as a more formidable resistance zone that would need to be reclaimed to signal a more durable bullish reversal.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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.