Gold (XAU/USD) struggles to gain any meaningful traction on Tuesday and remains confined within a narrow range heading into the European session. The US Dollar (USD) retreated from an over two-month high after Iran and Israel said on Monday they had halted attacks on each other following an appeal from US President Donald Trump. This, in turn, is seen acting as a tailwind for the precious metal. Traders, however, seem hesitant and opt to wait for further progress in the broader Middle East conflict, keeping the commodity within striking distance of its lowest level since March 23, set the previous day.
Meanwhile, the diplomatic engagement between the US and Iran remains deadlocked amid major disagreements over Tehran’s nuclear program. In fact, Trump has said that any peace deal must ensure Iran cannot develop a nuclear weapon. Moreover, Iran is demanding formal international recognition of its sovereignty and permanent control over maritime traffic through the Strait of Hormuz, the lifting of international sanctions, and the release of frozen assets. Major disagreements over key issues keep geopolitical risk premium in play, which could act as a tailwind for the safe-haven buck and cap any meaningful appreciation for the Gold price.
Adding to this, shipping traffic through the strategic chokepoint remains severely constrained, keeping energy markets highly volatile. This continues to fuel inflationary concerns and expectations for more hawkish central banks, including the US Federal Reserve (Fed). According to the CME Group’s FedWatch Tool, investors are assigning more than a 70% chance that the US central bank will hike interest rates by year-end. This remains supportive of elevated US Treasury bond yields, which might hold back the USD bears from placing aggressive bets and cap the non-yielding Gold. Traders might also opt to wait for US consumer inflation figures this week.
The closely-watched US Consumer Price Index (CPI) and Producer Price Index (PPI) reports for May are scheduled for release on Wednesday and Thursday, respectively. The crucial data would assist market participants to gauge the Fed’s monetary policy path, which, in turn, will play a key role in driving the USD demand. Furthermore, the incoming geopolitical headlines might continue to infuse volatility and provide some impetus to the Gold price. Nevertheless, 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 likely to be sold into and remain capped.
XAU/USD daily chart
Gold seems vulnerable as 200-day SMA breakdown remains in play
From a technical perspective, last week’s breakdown and close below the 200-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders. The subsequent fall, however, showed some resilience near a descending channel support, near $4,270.16. Hence, it will be prudent to wait for a sustained break below the said area before positioning for deeper losses.
Meanwhile, the Relative Strength Index (RSI) hovers around 35, staying in weak territory without yet signaling an oversold washout. Moreover, the Moving Average Convergence Divergence (MACD) remains in negative territory with subdued momentum, hinting that sellers still have the upper hand but lack aggressive follow-through.
Hence, any recovery attempt is likely to confront stiff resistance near the 200-day SMA at $4,441.10 that bulls would need to reclaim to ease immediate downside pressure, ahead of the channel’s upper boundary around $4,571.21. The latter is a key significant barrier, which should cap the Gold price within a broader bearish structure.
(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.
