Gold weakens as hawkish Fed outlook and Iran tensions support US Dollar
- Gold meets with a fresh supply as geopolitical risks and hawkish Fed bets underpin the USD.
- Iran's uranium enrichment and control over the Strait of Hormuz remain key sticking points.
- The technical setup too seems tilted in favor of bears and backs the case for further losses.
Gold (XAU/USD) attracts some sellers following the previous day's two-way price moves, though it manages to hold above the $4,500 psychological mark through the Asian session on Friday. The US Dollar (USD) remains close to a six-week high, touched on Wednesday, amid hawkish Federal Reserve (Fed) expectations. Apart from this, mixed signals over a potential US-Iran peace deal benefit the Greenback's reserve currency status and turn out to be a key factor that undermines demand for the commodity.
Market participants have completely priced out any possibility of a rate cut by the Fed for the remainder of 2026; instead, they are now betting on at least one rate hike before year-end amid rising energy prices and consumer inflation fears. Moreover, Minutes from the April 28–29 FOMC meeting released on Wednesday revealed officials leaning toward keeping rates elevated, or even raising them, if inflation continues to run persistently above the 2% target. The CME Group's FedWatch Tool indicates over a 60% chance that the US central bank will raise borrowing costs by 25 basis points (bps) at the December meeting. The outlook had been a key factor behind the recent surge in US Treasury bond yields, supporting the USD and weighing on the non-yielding Gold.
Meanwhile, a senior Iranian source said that no deal has been reached with the US, but the gaps in positions between the two sides have narrowed. However, Iran's uranium enrichment and Tehran's control over the critical Strait of Hormuz remain among the sticking points. US Secretary of State Marco Rubio warned that Iran’s desire to impose a toll on ships passing through the Strait was acting as a blockade to a potential peace agreement. US President Donald Trump also said that the US does not want tolls on the Strait of Hormuz and added that the US military will retrieve Iran's stockpile of highly enriched uranium. This keeps geopolitical risk premium in play and favors the USD bulls, suggesting that the path of least resistance for Gold is to the downside.
XAU/USD 4-hour chart
Gold seems vulnerable while below descending channel/200-EMA confluence hurdle on H4
From a technical perspective, the XAU/USD pair is holding within a broader descending channel and below the 200-period Exponential Moving Average (EMA) on the 4-hour chart, keeping the near-term bias capped despite some stabilization. The top of the downward-sloping channel near $4,657.44 converges with the 200-period EMA to form a dense overhead supply area. This, in turn, suggests that recovery attempts are likely to struggle while the Gold price remains under this band.
Meanwhile, the Moving Average Convergence Divergence (MACD) indicator has turned positive, while the Relative Strength Index (RSI) hovers around 45. Mixed momentum indicators hint at easing downside momentum, though they are not yet signaling a decisive bullish shift against the dominant structural downtrend. Hence, a clear break above the aforementioned clustered resistance zone would be needed to relieve the current bearish pressure.
On the downside, the lower boundary of the parallel channel near $4,362.54 acts as the next meaningful support. A sustained break beneath this floor would reinforce the broader bearish structure and open the way for deeper losses in the coming sessions.
(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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