Gold bulls seem hesitant as reviving Fed hike bets counter USD weakness
- Gold attracts some dip-buyers at the start of a new week as the USD struggles to lure buyers.
- Escalating US-Iran tensions and Fed hike bets should limit USD losses, capping the commodity.
- A sustained move above the trend-channel barrier is needed to back the case for further gains.
Gold (XAU/USD) sticks to its modest intraday gains through the first half of the European session on Monday amid a softer US Dollar, though it lacks follow-through buying, warranting caution for bullish traders. Persistent geopolitical uncertainties, along with expectations of higher US interest rates, hold back USD bears from placing aggressive bets and act as a headwind for the non-yielding bullion.
In the latest developments surrounding the Middle East crisis, the US said that it had completed a ninth straight night of strikes against Iran on Sunday after announcing the death of another American service member in Iraq. US President Donald Trump said that the latest strikes were being carried out in honor of US service members killed in recent days. Moreover, the US Central Command stated on X that the strikes are aimed at degrading Iranian military capabilities used to attack commercial vessels and civilian mariners transiting the Strait of Hormuz. In response, Iran fired ballistic missiles and one-way attack drones targeting US allies in the region, with Bahrain, Jordan, Kuwait, and Iraq reporting a new wave of attacks.
This raises the risk of a broader regional war and prompts traders to continue pricing in the geopolitical risk premium. Adding to this, the US recently resumed a naval blockade of Iranian ports and restricted an earlier oil-selling license. On the other hand, the Islamic Revolutionary Guard Corps (IRGC) is aggressively monitoring and attempting to restrict vessel traffic through the Strait of Hormuz. This, in turn, lifts crude oil prices to the highest since June 12, fueling inflation worries and bolstering bets for a Fed rate hike in 2026. Furthermore, Cleveland Fed President Beth Hammack argued on Friday that rates may need to rise to beat back persistent inflation, which should support the USD and warrants caution for Gold bulls.
In the absence of any relevant market-moving US economic releases on Monday, the fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the XAU/USD pair has formed a near-term bottom. That said, comments from influential FOMC members could provide some impetus to the USD. Apart from this, the incoming geopolitical headlines should infuse some volatility in financial markets and contribute to producing short-term trading opportunities around Gold.
XAU/USD daily chart
Gold struggles to capitalize on modest intraday uptick amid bearish setup
From a technical perspective, the precious metal is holding within a downward-sloping channel and below the 200-day Simple Moving Average (SMA) near $4,495.79. This keeps the broader tone bearish despite some recent stabilisation. The XAU/USD pair currently sits just under the channel’s upper boundary around $4,056.51, suggesting rallies remain capped within the corrective structure.
Meanwhile, a modestly positive Moving Average Convergence Divergence (MACD) hints that the latest bounce carries some, but not dominant, upside momentum as the Relative Strength Index (RSI) lingers below the 50 line in mildly negative territory. Hence, a decisive break above the trend-channel hurdle is needed to open the way for a more convincing recovery toward the distant 200-day SMA at roughly $4,495.79.
On the downside, the lower boundary of the descending channel near $3,662.99 forms the next significant support, and a move back toward this zone would reinforce the prevailing bearish structure, exposing further weakness if broken.
(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.
