Gold extends pullback from two-month high as Iran risks counter receding Fed hike bets

Gold attracts some follow-through selling for the second consecutive day on Friday.
Geopolitical risks act as a tailwind for the safe-haven USD, weighing on the bullion.
Receding Fed rate hike bets could help limit losses for the non-yielding yellow metal.

Haresh Menghani FXStreet

Gold (XAU/USD) is seen extending the previous day's pullback from the vicinity of the $4,450 level, or the highest since June 5, and drifting lower for the second straight day on Friday. The downward trajectory dragged the commodity to a fresh weekly low, closer to the $4,300 mark during the Asian session. Persistent geopolitical uncertainties, to a large extent, offset receding US Federal Reserve (Fed) rate hike bets and act as a tailwind for the safe-haven US Dollar (USD), which, in turn, is seen weighing on the commodity.

In the latest developments surrounding the Middle East crisis, Treasury Secretary Scott Bessent said on Thursday that the US is going to apply measures that have never been seen on Iran. Meanwhile, a senior IRGC adviser Mohammad Reza Naqdi said that Tehran's strategy is to make any conflict so costly that future US administrations think twice before taking military action against Iran. This comes on top of rising tensions over the Strait of Hormuz and keeps the war-risk premium in play, lending some support to the USD.

President Donald Trump again claimed that the US has "total control" over the strategic waterway, while Iran pledged to keep the strait closed until all its demands are met. Moreover, the Iran-backed Houthis in Yemen escalated attacks on vessels in the Red Sea and Bab el-Mandeb Strait, and also claimed a drone strike on a Saudi Aramco refinery, raising the risk of a broader regional conflict. Crude oil prices, however, remain depressed on the back of weak global demand outlook and an outsized build in US inventories.

Meanwhile, data released on Thursday showed that the US Producer Price Index (PPI) was unchanged in July, falling short of market expectations for a 0.2% rise. Adding to this, the yearly rate decelerated from 5.5% in June to 4.7%, also coming in below the 4.9% estimate. This, along with the US Consumer Price Index (CPI) released on Wednesday, pointed to a slowdown in overall inflation and gave the US Federal Reserve (Fed) room to keep interest rates unchanged, holding USD bulls from placing fresh bets.

Adding to this, mixed comments from influential FOMC members force traders to scale back expectations for an immediate policy tightening. Chicago Fed President Austan Goolsbee pointed out that recent price spikes are largely driven by temporary tariff and energy factors, favoring patience rather than aggressive monetary tightening. However, Cleveland Fed President Beth Hammack argued that progress on inflation is still insufficient, asserting that further rate increases may be needed to secure price stability.

Nevertheless, Fed funds futures indicate just over a 65% probability of a rate hike by the end of this year, down from nearly 75% the previous day and 85% a week earlier. Furthermore, robust central bank demand could help limit further losses for the non-yielding Gold. A US SEC filing showed that the Bank of Korea held 679,765 shares of SPDR Gold Trust, valued at roughly USD 250.4 million as of the end of June. This, in turn, warrants caution before confirming that the XAU/USD pair has topped out in the near term.

XAU/USD 4-hour chart

Technical Analysis

The precious metal holds above the 200-period Exponential Moving Average (EMA) on the 4-hour chart, and a dense cluster of Fibonacci supports, suggesting the broader uptrend is still intact despite the latest pullback. However, momentum has softened, with the Moving Average Convergence Divergence (MACD) below zero and its signal line, and the Relative Strength Index near 42, hinting that upside impulses are waning.

Meanwhile, immediate support appears at the 38.2% Fibonacci retracement of the latest leg up from the August swing low, at $4,285. This is followed by deeper structural floors at the 50.0% retracement near $4,234 and the 61.8% level at $4,184, with the 200-period EMA reinforcing demand slightly below. On the topside, initial resistance is seen at the 23.6% retracement at $4,347, ahead of the cycle high anchor around $4,448.40, where a sustained break would reopen the path toward additional gains.

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

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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