Gold struggles below $4,100 as US Dollar rebounds, Fed decision looms

Gold (XAU/USD) opens the week with a bullish gap on Monday but struggles to build on its early advance as optimism over a temporary pause in attacks between the United States (US) and Iran fades and Oil prices recover from intraday lows. At the time of writing, XAU/USD trades around $4,073 after briefly climbing above $4,100, up 0.50% on the day.

US Ambassador to the United Nations Mike Waltz said President Donald Trump is giving negotiations some space while keeping all military options on the table. Tehran also said it would refrain from fresh attacks as long as Washington did the same.

Oil prices opened the week sharply lower on hopes that the pause in hostilities could ease supply risks. However, sellers quickly moved to the sidelines as the geopolitical situation remained fluid. Iranian Foreign Ministry spokesperson Esmaeil Baghaei said the situation in the Strait of Hormuz had not changed and that the strategic waterway remained closed.

West Texas Intermediate (WTI) trades near $82.70 per barrel, rebounding from an intraday low of $81.28, but remains down more than 7% on the day.

Gold’s reaction again shows how the metal has decoupled from its traditional safe-haven role since the US-Iran war began, with price action driven largely by the inflationary impact of higher Oil prices and their implications for Federal Reserve (Fed) monetary policy.

The Fed’s interest rate decision on Wednesday is the key risk event this week, alongside the US Personal Consumption Expenditures (PCE) inflation data on Thursday.

The central bank is expected to leave rates unchanged, but traders still price in a 33% chance of a hike, according to the CME FedWatch Tool. The probability of a rate increase in September stands near 79%.

The possibility of higher US interest rates remains a major headwind for the non-yielding metal, while the US Dollar continues to benefit from hawkish Fed expectations and the fragile Middle East situation.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 101.50, recovering from an intraday low of 101.12.

Strategists at OCBC note that “a hold accompanied by hawkish guidance would likely push expected rate hikes further out the curve without materially altering the roughly 55 [bps] of cumulative tightening priced in through mid-2027.” In their view, “in this scenario, the USD should remain supported.”

By contrast, OCBC cautions that “a decision to leave rates unchanged with little explanation could be interpreted as dovish and create confusion about the Fed's reaction function,” a misstep that “risks lifting long-end inflation breakevens, a development that would be negative for the USD.”

Technical analysis: XAU/USD consolidates near 21-day SMA

From a technical perspective, XAU/USD remains rangebound between $4,000 and $4,200, with prices fluctuating around the 21-day Simple Moving Average (SMA) at $4,068. The near-term outlook is neutral, although the broader bias stays bearish as the metal trades below the 50-day and 100-day SMAs at $4,221 and $4,469, respectively.

The Relative Strength Index (RSI) on the daily chart is at 47, leaning neutral, while the Moving Average Convergence Divergence (MACD) stays in positive territory, suggesting that downside momentum is limited even as the broader structure remains capped by overhead averages.

On the upside, the $4,200 psychological mark and the 50-day SMA at $4,221 form the initial resistance zone. A decisive break above this area could open the door toward the 100-day SMA at $4,468.

Initial support is seen at the 21-day SMA near $4,069, followed by the $4,000 level. A daily close below this level would expose deeper retracement, while holding above it would keep XAU/USD in a range, with bulls needing a clear move through $4,222 to regain control.

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