Gold sticks to modest recovery gains; bulls lack conviction amid Fed hike bets, Iran risks
- 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) trims part of its modest intraday gains and remains well within striking distance of a one-week low, touched the previous day. 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 helps limit deeper USD losses. Moreover, expectations that elevated oil prices can accelerate inflation and keep interest rates higher for longer further cap the upside for 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 remains vulnerable within descending channel, below 200-SMA on H4
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.)
Fed FAQs
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.
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.
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.
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.
