Gold heads for weekly loss as Middle East tensions, Fed hike fears cap recovery
- Gold heads for a weekly loss as renewed Middle East tensions revive inflation and Fed rate hike fears.
- Markets await next week's US CPI data for fresh clues on the Fed's monetary policy path.
- Technically, XAU/USD retains a bearish structure, trading below the 50-day, 100-day and 200-day SMAs.
Gold (XAU/USD) trades on the back foot on Friday, struggling to build on the previous day's gains and heading for a weekly loss as renewed hostilities in the Middle East have revived fears of energy-driven inflation and Federal Reserve (Fed) interest rate hikes.
At the time of writing, XAU/USD is trading around $4,098, down 0.60% on the day.
The metal, however, lacks follow-through selling as traders reassess US-Iran tensions following reports that technical talks are continuing despite the military clashes, prompting a pullback in crude Oil prices.
Can Gold stage a sustained recovery?
While Gold has staged a modest rebound from $3,941, its lowest level since November 2025, the metal is struggling to attract meaningful buying interest.
Since the US-Iran war broke out in February, Gold has behaved less like a traditional safe-haven asset and more like a rate-sensitive instrument, with price action largely driven by the hawkish repricing of Fed interest rates.
As a result, Gold posted its worst quarterly performance in thirteen years, while traders also booked profits following an exceptional two-year rally that pushed prices to a record high near $5,600 in January.
The near-term outlook is still tilted to the downside. The situation in the Middle East remains fragile, keeping the risk of energy-driven inflation at the forefront.
Even if geopolitical tensions ease and lower crude Oil prices help reduce inflation concerns, the Fed is expected to maintain a restrictive monetary policy stance as policymakers continue to signal the central bank's commitment to returning inflation to its 2% target.
Gold is therefore unlikely to stage a sustained recovery as expectations for a Fed interest rate hike later this year continue to support the US Dollar (USD) and US Treasury yields.
According to the CME FedWatch Tool, markets are pricing in a 58% chance of a rate increase at the September meeting. Attention now turns to next week's US Consumer Price Index (CPI) data, due on Tuesday, which could shape expectations for the Fed's interest rate path in the coming months.
Technical analysis: XAU/USD struggles below key resistance levels
On the daily chart, XAU/USD remains within a downward channel and is holding below the 50-day, 200-day and 100-day Simple Moving Averages (SMAs), which collectively cap the topside and reinforce a bearish bias.
Momentum is subdued, with the Relative Strength Index (RSI) at 43.63 hovering below the neutral 50 line, while the Average Directional Index (ADX) at 37.13 points to a still-firm trend, suggesting that selling pressure remains dominant as Gold struggles to reclaim broken levels.
On the topside, initial resistance emerges at the horizontal barrier near $4,200, ahead of the 50-day SMA around $4,352. A stronger resistance zone lies around the 200-day SMA at $4,493, with the upper boundary of the descending channel near the 100-day SMA at $4,593 likely to cap any recovery attempts.
On the downside, the next notable support sits at the horizontal level around $3,950, and a clear break below this floor would open the door to a deeper slide within the prevailing bearish structure.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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