Gold Price Forecast: XAU/USD looks vulnerable on hawkish Fed expectations, USD demand
- Gold consolidates in monthly lows around $5,000 early Tuesday, as focus shifts to the Fed policy verdict.
- The US Dollar finds fresh haven demand as the Middle East war drags on; Strait of Hormuz reopening hopes fade.
- Technically, Gold eyes a sustained break below the 50-day SMA at $4,965 as RSI stays bearish.
Gold is in a bearish consolidation phase near the monthly lows, while battling the $5,000 level early Tuesday.
Gold: Struggle with the $5,000 mark extends
Amid renewed haven demand for the US Dollar (USD) and increased expectations that the US Federal Reserve (Fed) could turn hawkish on Wednesday keep the bearish pressures intact on Gold.
The Israel Defense Forces (IDF) said on Tuesday that they “identified missiles launched from Iran toward the territory of the State of Israel. Defensive systems are operating to intercept the threat.”
Meanwhile, Iranian Foreign Minister denies report of direct communication with US envoy Steve Witkoff, pouring cold water on any hopes of ceasefire talks.
Furthermore, markets remain worried about the persistence of oil supply disruption globally as European countries ruled out sending warships to the Strait of Hormuz, despite threats from US President Donald Trump that NATO faces “a very bad future” if members fail to help reopen the vital waterway.
These geopolitical developments concerning the Middle East war rekindle safe haven flows into the Greenback.
Additionally, the USD also receives support from diminishing bets that the Fed could cut interest rates later this year. Markets are expecting the Fed to keep the policy rates unchanged for the next three meetings.
Gold could also face some headwinds from the widely expected interest rate hike from the Reserve Bank of Australia (RBA) on Tuesday as the central bank looks to beat the energy-driven inflation shock.
However, the downside appears cushioned as ‘dip-buying’ remains in play as investors still have some faith left in the traditional store of value, Gold, as uncertain times persist due to the Middle East conflict.
Looking ahead, Gold traders will continue to remain at the mercy of the Middle East headlines and the price action in the USD and Oil prices as the Fed kicks off its two-day monetary policy meeting later this Tuesday.
Gold price technical analysis: Daily chart
The near-term bias is mildly bullish as price holds above the rising 21-day and 50-day Simple Moving Averages (SMAs), while the 100- and 200-day SMAs trend below and higher, outlining a well-established broader uptrend. The latest candles stabilise just above the 50% Fibonacci retracement at $4,999.94 measured from the $4,401.99 low to the $5,597.89 high, suggesting dip buyers defend this mid-range area. The Relative Strength Index (RSI) near 47 stays close to the neutral band, indicating momentum has cooled but not flipped decisively in favour of sellers.
Initial support emerges at the 38.2% retracement at $4,858.82, where the 50-day SMA trades nearby to reinforce this downside cushion. A break below that zone would expose the $4,684.22 area, aligning with the 23.6% retracement as the next notable floor within the broader bullish structure. On the upside, immediate resistance stands near the recent congestion around $5,080, ahead of stronger supply at the 61.8% retracement at $5,141.05. A daily close above $5,141 would reopen the path toward the $5,342 region, where the 78.6% retracement is located and where buyers would need to extend gains to revive a test of the $5,598 high.
(The technical analysis of this story was written with the help of an AI tool.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
