Gold bears retain control as USD strengthens on Fed hike bets and Mideast crisis

Gold (XAU/USD) maintains its offered tone through the first half of the European session on Thursday and seems vulnerable to following an intraday rejection near the $4,100 mark. Following Wednesday's post-FOMC downfall to a one-week low, the US Dollar (USD) regains positive traction amid escalating US-Iran tensions. Furthermore, inflation risks stemming from the Middle East crisis keep US Federal Reserve (Fed) rate-hike bets firmly on the table, lending additional support to the buck and further undermining the non-yielding bullion.

As was widely expected, the US Federal Reserve (Fed) held interest rates steady at the end of a two-day meeting on Wednesday. The central bank, however, refrained from adopting a more aggressive stance on monetary policy, which weighed heavily on the USD and lifted the Gold price to the weekly high. That said, the on-hold decision drew three dissents who preferred a 25-basis-point rate hike. Furthermore, traders are still pricing in a greater chance that the Fed will raise borrowing costs at least once by the end of this year amid rapidly shifting inflationary dynamics due to volatile oil prices.

According to TD Securities, “precious metals have remained weak in the face of hawkish market pricing for the Fed,” with renewed strength in energy markets expected to “continue to feed into this narrative.” The firm notes that this combination of tighter policy expectations and rising energy prices is keeping gold and the broader precious metals complex on the back foot, reinforcing the current downside bias.

The dominant factor driving crude prices is the ongoing conflict between the US and Iran, including tensions surrounding crucial shipping chokepoints – the Strait of Hormuz and the Bab el-Mandeb. In fact, the US launched strikes against Iran in response to surprise Iranian missile attacks on American forces based in the Middle East on Tuesday. Adding to this, joint US-Saudi strikes against Iran-aligned terrorists in Iraq raise the risk of a broader regional conflict. Moreover, reports suggest that Yemen’s Iran-backed Houthis are considering imposing fees on commercial ships sailing through the southern Red Sea.

This comes on top of the US-Iran standoff over the Strait of Hormuz, which added to concerns about significant disruptions to global energy supplies and led to the overnight sharp rise in crude oil prices. The latest developments fuel worries about energy-driven inflation and back the case for policy tightening by the Fed. Traders now look forward to important US macro releases – the Advance Q2 GDP report and the Personal Consumption Expenditures (PCE) Price Index. The crucial data will be looked at for cues about the Fed's policy path, which will drive the USD and provide a fresh impetus to the Gold price.

XAU/USD daily chart

Technical Analysis: Gold seems vulnerable; $4,000 holds the key for bears

From a technical perspective, the range-bound price action witnessed over the past month or so might still be categorized as a bearish consolidation phase against the backdrop of a breakdown below the 200-day Simple Moving Average (SMA). This suggests that the path of least resistance for Gold remains to the downside despite the recent rebound from sub-$4,000 levels.

Meanwhile, the Moving Average Convergence Divergence (MACD) indicator turns positive, hinting at improving short-term momentum. However, the Relative Strength Index (RSI) around 48 stays below the midline, reinforcing a capped tone rather than a sustained bullish reversal. Hence, any move up might confront a hurdle near the top end of the range, ahead of $4,200.

A sustained move above should pave the way for additional gains to the 200-day SMA at $4,490.80, which is the key barrier that bulls would need to reclaim to revive a durable upside trend. On the downside, immediate support is seen at recent swing lows around the $3,976–$4,000 area, where buyers previously emerged. As long as XAU/USD trades under the 200-day SMA pivotal resistance, any recovery is likely to be treated as corrective within a broader consolidative-to-bearish framework.

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