Gold struggles near weekly low, just above $4,550 as Fed rate hike bets boost USD
- Gold attracts some follow-through sellers for the fourth straight day amid sustained USD buying.
- Inflationary concerns continue to fuel hawkish Fed bets and lift the USD to over a one-month top.
- Persistent geopolitical uncertainties turn out to be another factor underpinning the Greenback.
Gold (XAU/USD) prolongs this week's retracement slide from the monthly peak and drifts lower for the fourth straight day on Friday. The commodity extends the downward trajectory through the first half of the European session and drops closer to the $4,550 level, hitting an over one-week low amid sustained US Dollar (USD) buying interest. The USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs to its highest level since April 8 as US-Iran peace talks remain in limbo amid major disagreements over Tehran's nuclear program and the Strait of Hormuz. Adding to this, rising bets for interest rate hikes by the US Federal Reserve (Fed) lend additional support to the USD and undermine demand for the non-yielding bullion.
US President Donald Trump said in an interview aired on Thursday night on Fox News that he would not be much more patient with Iran and urged Tehran to reach a deal. Meanwhile, a commercial vessel was reportedly seized by Iranian personnel off the United Arab Emirates (UAE), stoking concerns over the flow of energy supplies through the critical Strait of Hormuz. The latest developments remain supportive of elevated Crude Oil prices. Adding to this, hotter-than-expected US inflation figures released this week and Thursday's US Retail Sales data lifted market expectations for a more hawkish US central bank and continue to act as a tailwind for the USD.
The headline US Consumer Price Index (CPI) rose to 3.8% YoY rate in April, and the core gauge climbed to 2.8%. Adding to this, the US Producer Price Index (PPI) surged 1.4% last month, pushing the annual rate to 6.0%. Moreover, US Retail Sales expanded for the third consecutive month in April, reflecting a still resilient consumer spending despite rising inflationary pressures and reaffirming hawkish Fed bets. According to the CME Group's FedWatch Tool, traders are now pricing in a nearly 40% chance that the US central bank will raise borrowing costs by the year-end. This, in turn, favors the USD bulls and backs the case for further depreciation of the Gold price.
Furthermore, record-high Indian discounts of up to $207 per ounce emerged after the government hiked import duties on Gold to 15% (up from 6%). The sudden tariff hike forced dealers to offer heavy discounts over official domestic prices. In contrast, strong investment demand for physical bullion keeps Chinese premiums firm at $14 to $20 an ounce over global benchmark prices. This, however, does little to act as a floor for international Gold prices amid ongoing geopolitical tensions and inflation concerns.
Meanwhile, US-China relations seem to have stabilized following a high-level summit between Trump and Chinese President Xi Jinping. Xi, however, warned that mishandling the Taiwan issue could trigger “clashes and even conflicts” between the US and China. Trump and Xi are set for a second day of talks in Beijing, and the incoming headlines might continue to infuse some volatility in the financial markets. Apart from this, developments surrounding the Middle East crisis would be looked upon for short-term trading opportunities. Nevertheless, the XAU/USD pair remains on track to register weekly losses, and the broader fundamental backdrop seems tilted in favor of bears.
XAU/USD 1-hour chart
Gold seems vulnerable to retest monthly swing low, around the $4,500 mark
From a technical perspective, the recent repeated failures near the $4,765-$4,770 horizontal resistance constituted the formation of a double-top pattern. A subsequent break below the $4,670 confluence – comprising the 200-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the upswing from the $4,500 neighborhood, or the monthly low – validates the negative outlook.
Adding to this, the Moving Average Convergence Divergence (MACD) indicator sits deep in negative territory with a reading of -5.58. Moreover, the Relative Strength Index (RSI) has slipped to 26.5, hinting at oversold conditions that could slow, but not yet reverse, the prevailing downside pressure.
On the downside, immediate support is aligned at the 61.8% Fibonacci retracement at $4,605.89, ahead of a secondary floor at the 78.6% level at $4,560.62 and the prior swing low region at $4,502.95. On the topside, initial resistance emerges at the 50% retracement at $4,637.69, followed by a thicker congestion zone between the 38.2% retracement at $4,669.49 and the 200-hour SMA at $4,673.40, with further recovery likely to face a stronger cap at the 23.6% retracement near $4,708.83.
(The technical analysis of this story was written with the help of an AI tool.)
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.
