Gold bulls seem hesitant as Iran deal uncertainty and hawkish Fed bets counter softer USD
- Gold regains positive traction as a partial Israel-Hezbollah ceasefire prompts some USD selling on Tuesday.
- The uncertainty over US-Iran peace talks and Fed rate hike bets support the USD, capping the bullion.
- Traders look forward to this week’s release of the US NFP report for a fresh directional impetus.
Gold (XAU/USD) clings to modest intraday gains through the first half of the European session on Tuesday, though it lacks follow-through buying and remains below the previous day's swing high. A partial ceasefire between Hezbollah and Israel eases fears of a broader regional conflict, undermining the safe-haven US Dollar (USD) and providing a goodish lift to the bullion. However, the uncertainty around US-Iran peace talks, along with inflation fears and prospects for interest rate hikes, should limit deeper USD losses and cap the yellow metal.
US President Donald Trump announced on social media on Monday that Israel has agreed to pull back any troops that were preparing to attack Beirut and its suburbs controlled by Hezbollah. Furthermore, Trump also communicated with Iran-aligned Lebanese militant group Hezbollah through intermediaries and secured a pledge that it would not attack Israel. A limited de-escalation of the conflict fails to assist the USD to build on the previous day's move up. However, mixed signals about US-Iran negotiations to end a three-month-old war act as a tailwind for the buck.
Iran warned that it would suspend negotiations with the US following fresh strikes and an Israeli military operation in Lebanon. However, Trump asserted that peace talks were ongoing with Iran, adding that he will have an agreement to extend the ceasefire and reopen the Strait of Hormuz over the next week. Nevertheless, investors remain on edge and opt to wait for further progress in US-Iran peace talks. In the meantime, expectations that elevated energy prices would prompt major central banks, including the US Fed, to stick to their hawkish outlook should cap the non-yielding Gold.
Market participants now look to the US economic docket – featuring the release of JOLTS Job Openings – for some impetus later during the North American session. The focus, however, will remain glued to the closely-watched US Nonfarm Payrolls (NFP) report on Friday and drive the USD demand. Apart from this, further developments surrounding the Middle East crisis should infuse volatility across the global financial markets and produce some meaningful trading opportunities around the Gold. The fundamental backdrop, meanwhile, seems tilted in favor of the XAU/USD bears.
XAU/USD 4-hour chart
Gold struggles to capitalize on intraday gains amid bearish technical setup
From a technical perspective, the precious metal holds within a downward-sloping parallel channel and trades beneath the 200-period Simple Moving Average (SMA) on the 4-hour chart, retaining a bearish bias. The structure suggests sellers remain in control despite a modest stabilization in momentum indicators. In fact, the Relative Strength Index (RSI) hovers near a neutral 49. That said, the Moving Average Convergence Divergence (MACD) has slipped slightly into negative territory, hinting at waning bullish attempts.
Hence, any subsequent move up is more likely to confront initial resistance around at $4,615.35, followed closely by the 200-period SMA at $4,619.67, before the channel top near $4,655.17 comes into view. A sustained break above this cluster would be needed to ease the current downside pressure. On the downside, the main support is defined by the lower boundary of the descending channel at $4,320.15, where a decisive break would reinforce the broader bearish pattern and open the door to deeper losses.
(The technical analysis of this story was written with the help of an AI tool.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for 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.
