Gold struggle to capitalize on intraday gains as Iran risks and Fed bets limit USD losses
- Gold rebounds from a one-week low as the Israel-Lebanon truce undermines the safe-haven USD.
- The US-Iran standoff keeps geopolitical risk premium in play and should limit deeper USD losses.
- Fed rate hike bets further favor USD bulls and might cap the upside for the non-yielding commodity.
Gold (XAU/USD) sticks to modest recovery gains through the Asian session on Thursday, though it lacks follow-through and remains within the previous day's swing high. The Israel-Lebanon truce prompts some profit-taking around the US Dollar (USD) and supports the commodity. That said, the lack of a breakthrough in US-Iran diplomatic negotiations and renewed hostilities in the Middle East keep geopolitical risks in play, which should help limit USD losses. Furthermore, expectations that elevated oil prices can accelerate inflation and keep interest rates higher for longer hold back bulls from placing aggressive bets on the non-yielding yellow metal.
Israel and Lebanon agreed to implement a ceasefire after US-led talks in Washington on Wednesday. The joint statement said on Wednesday that the ceasefire was contingent on a complete cessation of fire by Iran-backed Hezbollah as well as the evacuation of the group’s operatives from southern Lebanon. Adding to this, the Republican-led US House of Representatives approved a resolution that seeks to block President Donald Trump from taking further military action in Iran. This raises hopes for a deal to end a three-month-old US-Israeli war with Iran, triggering a modest USD pullback following the overnight strong move up to its strongest level since April 7 and benefiting the Gold.
Meanwhile, a report by The Jerusalem Post suggests that the diplomatic engagement between the US and Iran hits a roadblock amid Tehran's rigid demand for the immediate unfreezing of capital at the very start of the process. Adding to this, senior US officials remain firm that the US will not unfreeze any funds at the outset without a significant Iranian move on the nuclear issue and the Strait of Hormuz, keeping a lid on the latest optimism. This, along with expectations for a hawkish US Federal Reserve (Fed), might hold back the USD bears from placing aggressive bets and cap any further appreciation for the Gold price, which remains well below the $4,500 psychological mark.
Traders now look to the release of the US Weekly Jobless Claims data and speeches by influential FOMC members for some impetus later during the North American session. The focus, however, will remain on the US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday, which should provide more cues about the Fed's policy path. Apart from this, the incoming geopolitical headlines might continue to infuse volatility across the global financial markets, which, in turn, will drive the USD and the Gold price in the near-term.
XAU/USD 4-hour chart
Gold is likely to attract fresh sellers at higher levels; 200-SMA on H4 holds the key
From a technical perspective, the XAU/USD pair maintains a bearish near-term bias within a downward parallel channel and stays below the 100-period simple moving average (SMA) on the 4-hour chart. The latter is pegged at roughly $4,533, which now acts as overhead resistance.
Momentum indicators back this cautious tone, with the Relative Strength Index near 44 and the Moving Average Convergence Divergence (MACD) below zero and its signal line. This, in turn, suggests that rallies are likely to struggle while the broader downtrend remains intact.
Meanwhile, the channel’s lower boundary around $4,314 offers the main support level, and a clear drop through this floor would open the way for a deeper retracement within the broader bearish setup.
(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.
