Gold flat lines below $4,050 as Fed hike bets and firmer USD cap recovery from YTD low
- Gold attracts some buyers and stages a goodish recovery from the YTD low, set this Tuesday.
- The US-Iran uncertainty and Fed hike bets revive the USD demand, capping the precious metal.
- Traders now look to the US data for some impetus ahead of Fed Chair Warsh and the US NFP.
Gold (XAU/USD) struggles to build on its intraday recovery from the lowest level since November 2025, touched earlier this Tuesday, and trades below $4,050, nearly unchanged during the first half of the European session. Against the backdrop of renewed Mideast tensions, mixed signals on US-Iran talks assist the safe-haven US Dollar (USD) to attract fresh buyers and stall its recent pullback from the highest level since May 2025. Moreover, elevated expectations for Federal Reserve (Fed) interest rate hikes favor the USD bulls, warranting caution before positioning for any further move higher for the bullion.
Media reports suggested that the US and Iran have agreed to "stand down" following an exchange of strikes in and around the Strait of Hormuz over the past few days, with both countries accusing each other of violating the ceasefire agreement. Adding to this, US President Donald Trump wrote on Truth Social that Iran had requested a meeting, and it will take place in Qatar's capital, Doha, on Tuesday. However, Deputy Iranian Foreign Minister Kazem Gharibabadi denied that there were plans for technical talks this week. This keeps geopolitical risk premiums in play and benefits the safe-haven USD.
Meanwhile, renewed US-Iran hostilities sparked fears of inflation, which, along with the Fed's more hawkish tilt, bolsters bets for higher interest rates. According to the CME Group's FedWatch Tool, traders are still pricing in around a 63% chance that the US central bank will raise borrowing costs in September and assigning over an 80% probability of a move by the end of this year. The outlook, in turn, is seen as another factor contributing to the bid tone surrounding the USD and driving flows away from the non-yielding Gold, which now seems to have found acceptance below the $4,000 psychological mark.
Furthermore, the Japanese Yen (JPY) plunged to a fresh four-decade low vs the USD, causing collateral damage in precious metal markets. Traders now look to Tuesday's US economic docket, featuring the Conference Board's Consumer Confidence Index and JOLTS Job Openings data. The focus, however, will be on Fed Chair Kevin Warsh's appearance on Thursday at the European Central Bank (ECB) Forum in Sintra. Apart from this, the popularly known Nonfarm Payrolls (NFP) report will offer cues about the Fed's policy path, which will drive the USD and influence the Gold price.
XAU/USD 4-hour chart
Gold stalls intraday recovery from YTD low; bearish potential seems intact
Against the backdrop of the recent repeated failures near the 100-period Simple Moving Average (SMA) on the 4-hour chart, acceptance below the $4,000 mark could be seen as a fresh trigger for the XAU/USD bears. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator sits just below the zero line with a small negative reading, hinting at waning downside momentum rather than a clear recovery. However, the Relative Strength Index (RSI) near 34 flirts with oversold territory, suggesting that selling pressure could start to tire without yet signalling a confirmed bullish reversal.
Any meaningful recovery back above the $4,000 mark, however, is likely to confront an immediate hurdle near the $4,045 region, above which the Gold price could aim to reclaim the $4,100 mark. A further move up could attract fresh sellers and remain capped near the 100-period SMA at $4,180.34. A sustained break above this barrier would be needed to alleviate the current bearish bias and open the door to a more constructive recovery phase.
(The technical analysis of this story was written with the help of an AI tool.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
