Gold bulls seem hesitant near $4,350 as Iran risks and Fed hike bets support USD
- Gold attracts some dip-buyers at the start ofa new week, though it lacks follow-through. .
- Oil prices fuel inflation fears and keep Fed hike bets on the table, undermining the bullion.
- Mideast tensions support the safe-haven USD and contribute to capping the precious metal.
Gold (XAU/USD) climbs above $4,350, hitting a fresh high during the first half of the European session on Monday, though it remains below the highest level since June 17, set on Friday in reaction to the US Nonfarm Payrolls (NFP) report. In fact, the crucial US monthly employment data showed that the economy unexpectedly lost 23K jobs in July, while the previous month's reading was also revised down to 20K from 57K. This pointed to signs of a cooling US labor market and undermined the case for the US Federal Reserve (Fed) to raise interest rates, which, in turn, weighed heavily on the US Dollar (USD) and provided a goodish lift to the non-yielding bullion.
The immediate market reaction, however, turned out to be short-lived as uncertainties surrounding the Middle East crisis and the reopening of the Strait of Hormuz offered some support to the safe-haven Greenback. In fact, Iran reiterated conditions for a full reopening of the critical waterway, including an end to the US naval blockade, the removal of sanctions and compensation for war damage. Moreover, Tehran has ruled out direct talks with the US, citing alleged violations of the interim peace agreement reached in June. This keeps the geopolitical risk premium in play and underpins the USD, capping gains for gold.
Meanwhile, the US-Iran standoff acts as a tailwind for crude oil prices. Investors remain worried that rising energy prices will rekindle inflationary pressures and force major central banks to adopt a more hawkish stance. Furthermore, the CME Group's FedWatch Tool indicates that traders are still pricing in a greater chance that the US central bank will raise borrowing costs by the year-end. The outlook remains supportive of elevated US Treasury bond yields, which favors USD bulls and backs the case for the emergence of fresh selling around gold. Traders now look to the release of the latest US inflation figures this week.
According to TD Securities, “the risk of a hike lingers,” but the bank argues that upcoming inflation data could shift market pricing meaningfully. The team expects “core and headline CPI this week (0.20% m/m and 0.15% m/m, respectively)” and contends that such outcomes “would likely lead to further pricing out of hikes.” With “the majority of the recent move higher in rates driven by Fed expectations,” TD Securities adds that “rates could move lower as hikes are priced out.”
XAU/USD daily chart
Technical Analysis: Gold holds above 38.2% Fibo. as bulls await 100-SMA breakout
The XAU/USD pair keeps a broadly capped tone below the 100-day Simple Moving Average (SMA) at roughly $4,390 and the 200-day SMA near $4,496. Meanwhile, the Moving Average Convergence Divergence (MACD) stays positive, and the Relative Strength Index (RSI) holds in a bullish but not yet overbought region around 64. Moreover, the commodity has reclaimed the 38.2% Fibonacci retracement of the April-June downfall at about $4,303.27, though the cluster of higher retracement levels and longer-term averages overhead still suggests rallies are vulnerable.
On the topside, immediate resistance emerges at the 100-day SMA near $4,390, followed by the 50% retracement around $4,414. A daily close above these would expose the 200-day SMA at approximately $4,496 and the 61.8% retracement near $4,525, with further barriers at the 78.6% level around $4,683 and the recent cycle high close to $4,884. On the downside, initial support is seen at the 38.2% retracement near $4,303, ahead of the 23.6% level around $4,166, while a deeper setback toward the anchor zone near $3,944.21 cannot be ruled out if sellers regain control.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
