Gold declines as hawkish interest rate outlook and firm US Dollar weigh

• Gold remains under pressure as hawkish interest rate expectations weigh on the non-yielding metal.
• Tensions in the Strait of Hormuz rise as US-Iran diplomatic efforts fail to produce a breakthrough.
• XAU/USD holds near the lower Bollinger Band on the 4-hour chart.

Gold (XAU/USDS) kicks off the week under pressure, hovering near one-month lows as hawkish interest rate expectations continue to weigh on the non-yielding metal amid ongoing tensions in the Middle East. At the time of writing, XAU/USD is trading around $4,560, down nearly 1.10% on the day.

Strait of Hormuz tensions keep markets on edge

Market sentiment remains fragile amid uncertainty over the future of US-Iran peace talks, with tensions escalating. Iran’s Fars news agency reported that two missiles struck a US naval vessel near the island of Jask after it allegedly ignored warnings from the Islamic Revolutionary Guard Corps (IRGC) to halt.

The incident follows US President Donald Trump’s announcement of a naval initiative dubbed “Project Freedom,” aimed at escorting stranded commercial vessels through the Strait of Hormuz. In response, Tehran warned it would attack US forces if they attempted to approach or enter the waterway. However, a US official denied that any American vessel had been hit, according to Axios.

Meanwhile, diplomatic efforts remain stalled. Washington has rejected Iran’s revised 14-point proposal and presented a counteroffer, now under review in Tehran, with nuclear disagreements still unresolved.

Hawkish Fed bets pressure Gold

While a ceasefire appears to be holding, the conflict drags on with no clear end in sight. Ongoing supply disruptions in the Strait of Hormuz are keeping Oil prices elevated, sustaining global inflation risks.

The resulting energy shock is adding pressure on central banks, particularly the Federal Reserve (Fed), to keep borrowing costs higher for longer, or even tighten if inflationary pressures intensify. This, in turn, is pushing US Treasury yields higher, weighing on the non-yielding metal.

The CME FedWatch Tool shows the Fed is expected to hold rates through this year, while markets are now pricing in rate hikes next year, with the probability for January 2027 rising to 20% from near zero a week ago.

At the same time, persistent geopolitical tensions and growing hawkish Fed expectations are supporting the US Dollar (USD), adding further pressure on dollar-denominated XAU/USD.

Looking ahead, traders will continue to monitor US-Iran developments alongside upcoming US economic data for fresh clues on the Fed’s monetary policy path, with Fed officials also scheduled to speak throughout the week.

The US economic calendar features ISM Services Purchasing Managers Index (PMI) and JOLTS Job Openings on Tuesday, followed by ADP Employment Change on Wednesday, weekly Jobless Claims on Thursday, and the Nonfarm Payrolls (NFP) report on Friday.

Technical Analysis: XAU/USD hovers near support as momentum softens

In the 4-hour chart, XAU/USD holds just above the lower Bollinger Band at $4,533.56, but the price remains capped beneath the 20-period Bollinger Simple Moving Average around $4,594, keeping the near-term tone bearish. The Relative Strength Index (14) hovers near 39, pointing to weak momentum after a failed recovery attempt toward the mid-$4,600s.

On the topside, initial resistance is located at the Bollinger mid-line near $4,594, followed by the upper band around $4,655, with a more substantial barrier at the horizontal level of $4,850. On the downside, immediate support aligns with the lower Bollinger Band at $4,534, ahead of the previously drawn horizontal floor at $4,400, where buyers would be expected to show more interest if the decline extends.

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