Gold pauses recovery as firm US inflation reaffirms Fed hike bets amid Iran uncertainty
- Gold stalls its overnight recovery from a two-month low amid mixed signals over the Iran peace deal.
- A rise in US inflation bolsters Fed rate hike bets, underpinning the USD and capping the precious metal.
- The technical setup favors bearish traders and warrants caution before positioning for further gains.
Gold (XAU/USD) struggles to capitalize on the previous day’s solid rebound from the $4,367-$4,366 area, or its lowest level since March 27, and oscillates in a narrow band during the Asian session on Friday. The precious metal currently trades around the $4,500 psychological mark, nearly unchanged for the day, as traders opt to wait for further developments surrounding the US-Iran peace deal before placing fresh directional bets.
Axios, citing two US officials, reported that the US and Iran have reached a draft agreement to extend the ongoing ceasefire for 60 days. This eases concerns about a prolonged disruption to oil flows through the region and keeps Crude Oil prices depressed near the monthly trough, tempering rate hike expectations. Furthermore, the latest optimism undermines the US Dollar's (USD) reserve currency status, which, in turn, is seen as acting as a tailwind for the Gold price.
Meanwhile, the latest peace proposal still requires final approval from US President Donald Trump. Moreover, investors remain skeptical about a deal to end a three-month-old war amid major US-Iran disagreements over Tehran's nuclear program and the Strait of Hormuz. Moreover, a potential resumption in open hostilities between the US and Iran should keep the market enthusiasm in check. This, in turn, should help limit deeper USD losses and cap gains for the Gold.
The USD bears also seem hesitant amid a rise in US inflation at the fastest pace in three years, largely driven by higher energy costs due to the Middle East conflict. In fact, the US Bureau of Economic Analysis (BEA) reported on Thursday that the Personal Consumption Expenditures (PCE) Price Index accelerated to 3.8% YoY rate in April from 3.5% in the previous month. Moreover, the core gauge, which excludes volatile food and energy prices, rose 3.3%, as anticipated.
The data reinforced expectations that the US Federal Reserve (Fed) may need to keep rates elevated for longer and offset a slowdown in economic growth. The preliminary estimate revealed that the US Gross Domestic Product (GDP) increased at an annualized rate of 1.6% in the first quarter of 2026. This was a downward revision from the advance estimate of 2.0%. Traders, however, seem convinced that the Fed will raise borrowing costs by the end of this year amid sticky inflation.
According to the CME Group's FedWatch Tool, traders are currently assigning a roughly 50% chance of a 25-basis-point (bps) rate increase by the Fed in 2026. This, in turn, warrants some caution before positioning for any meaningful downside for the USD and placing aggressive bullish bets around the non-yielding Gold.
XAU/USD daily chart
Gold bears have the upper hand below 50-day SMA and descending channel resistance
The XAU/USD pair showed some resilience below a technically significant 200-day Simple Moving Average (SMA) on Thursday and staged a goodish recovery from the lower boundary of a short-term descending channel. This keeps the broader uptrend intact, though the lack of follow-through buying warrants some caution for bullish traders.
Meanwhile, the Moving Average Convergence Divergence (MACD) indicator sits in negative territory and the Relative Strength Index (RSI) around 42 suggests subdued, not yet oversold, downside momentum. Moreover, the precious metal holds well under the 50-day Simple Moving Average (SMA) at $4,627.51 and the descending channel hurdle around $4,667.32, keeping a bearish, capped tone intact.
On the downside, immediate support comes from the longer-term 200-day SMA at $4,405.20, ahead of the channel floor near $4,348.84. A sustained violation of the latter would reinforce the current bearish bias and open the door to a deeper corrective phase.
(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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