Gold rebounds from multi‑month low; bullish USD and Fed hike bets to cap upside
- Gold rebounds after touching a fresh low since March 30 earlier this Monday.
- The USD stands firm amid geopolitical risks and might cap gains for the bullion.
- Inflation fears reaffirm Fed hike bets, warranting caution for the XAU/USD bulls.
Gold (XAU/USD) stages a modest recovery from the $4,480 region, or its lowest level since March 30, touched during the Asian session on Monday, though the upside potential seems limited. 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 shows resilience below $4,500; not out of the woods yet amid bearish setup
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.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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