Gold remains depressed around $4,350 amid rate jitters, modest USD strength
- Gold attracts fresh sellers on Monday as hawkish Fed bets and geopolitics revive USD demand.
- The recent pullback in US bond yields might cap USD gains and lend some support to the bullion.
- Traders might also opt to move to the sidelines ahead of the key Trump-Xi meeting on Thursday.
Gold (XAU/USD) maintains its offered tone through the first half of the European session on Monday and currently trades around $4,350, down over 0.50% for the day. The commodity, however, holds comfortably above a six-week low, touched last Wednesday as traders await further developments around the Middle East crisis and their implications for inflation. This, in turn, would influence interest rate expectations and, in turn, drive the non-yielding bullion.
Yemen's Iran-backed Houthi forces attacked sensitive sites with missiles and drones in the Saudi capital of Riyadh on Saturday. Moreover, Iran ruled out reopening the Strait of Hormuz or returning to negotiations with the US until Washington meets its conditions – including an end to the war on all fronts, the release of frozen Iranian assets and the lifting of the US naval blockade on Iranian ports. Meanwhile, US President Donald Trump said that he is in "deciding mode" over the Iran war, warning that big things are going to happen in the near future, keeping the geopolitical risk premium in play.
Adding to this, the US Federal Reserve's (Fed) hawkish outlook helps the safe-haven US Dollar (USD) attract some dip-buyers and stall Friday's retracement slide from the highest level since late May. In fact, the so-called dot plot revealed that Fed officials expect one more rate increase this year following the first hike in over three years. This, in turn, is seen as a key factor exerting some pressure on gold. However, the recent pullback in US bond yields from multi-year highs might hold back USD bulls from placing aggressive bets and help limit any further losses for the precious metal.
Fed tightening risks seen skewed to the upside as US resilience persists
Analysts at Nordea highlight that the US economy “remains resilient,” with “inflationary pressures” showing “few signs of easing” and the labour market “also holding up well.” In their view, this combination strengthens “the case for a more restrictive monetary policy stance.” Nordea reiterates that it “maintain[s] our forecast for two more hikes,” but cautions that “we see the risks as tilted to the upside,” underscoring the possibility that the Fed may ultimately need to do more than currently anticipated.
A recovery in shipments from Saudi Arabia dragged crude oil prices to an over one-week low, helping alleviate immediate fears of runaway inflation and keeping the yield on the benchmark 10-year US Treasury below the 5% threshold. Traders also seem hesitant ahead of the crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping on Thursday. Apart from this, comments from influential FOMC members will drive the USD and the Gold price. In the meantime, the mixed fundamental backdrop warrants caution before positioning for a firm near-term direction.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair holds below the 100-day Exponential Moving Average (EMA) and the 38.2% Fibonacci retracement level of the June-August swing low, keeping a mildly bearish bias. Meanwhile, the Relative Strength Index (RSI) sits near 49, signaling neutral momentum. That said, the Moving Average Convergence Divergence (MACD) remains in negative territory with a slightly negative reading, which hints that upside attempts could continue to be capped by nearby overhead levels.
On the topside, initial resistance is defined by the 100-day EMA at $4,367, with the 38.2% Fibo. retracement at $4,406 acting as the next obstacle, ahead of a stronger barrier at the 23.6% retracement near $4,515. On the downside, immediate support emerges at the 50.0% retracement around $4,317, followed by deeper cushions at the 61.8% level near $4,229 and then the 78.6% retracement around $4,103, with the prior swing low zone at $3,942 marking a more distant floor if selling pressure resumes.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
