Gold holds firm as yields ease, US Dollar strength caps gains

Gold (XAU/USD) struggles to gain traction on Monday, trimming part of its earlier gains as escalating tensions in the Middle East and shifting interest rate expectations keep markets volatile. At the time of writing, XAU/USD is trading around $4,550 after touching a high near $4,580 during the European session, with an intraday low near $4,420.

Gold steadies as yields ease and Fed outlook shifts

The metal rose earlier in the day, supported by a pullback in US Treasury yields after a recent surge to multi-month highs. Despite the pullback in yields, they remain elevated overall, while the US Dollar (USD) continues to edge higher, limiting the upside in XAU/USD.

Markets are now reassessing the Federal Reserve’s (Fed) monetary policy outlook. Earlier, rising Oil prices had pushed expectations that the Fed could turn hawkish to tackle inflation, prompting traders to price in possible rate hikes later this year.

However, the focus is now shifting, as investors grow increasingly concerned about the impact of high energy prices on economic growth. According to the CME FedWatch Tool, markets expect the Fed to keep interest rates steady at 3.50%-3.75% through 2026.

Against this backdrop, a meaningful recovery in Gold appears unlikely. The metal remains down nearly 15% from its March peak of $5,419 and is on track to snap a seven-month winning streak in March. A higher-for-longer interest rate outlook raises the opportunity cost of holding non-yielding assets like Gold, making it less attractive to investors.

Federal Reserve Chair Jerome Powell said on Monday policy is “in a good place” to wait and assess how the current situation unfolds, noting uncertainty around the economic impact. He reaffirmed that the Fed remains committed to bringing inflation back to its 2% target on a sustained basis.

War intensifies as Houthis join the conflict

On the geopolitical front, the US-Israel war with Iran continues to intensify despite reports of ongoing negotiations. Over the weekend, Iran-backed Houthi militants entered the conflict, launching missile and drone attacks on Israel, opening a new front in the war.

This has raised fears they could target ships in the Red Sea, adding to global trade risks, while oil flows through the Strait of Hormuz remain disrupted.

Meanwhile, US President Donald Trump said on Monday that “great progress” has been made in talks with Iran and that a deal will “probably” be reached. He warned, however, that the US would “completely obliterate” Iran’s power infrastructure, oil wells and Kharg Island if negotiations fail, adding that Washington is in serious discussions with a “new and more reasonable” regime to end military operations.

These developments come as the Pentagon is reportedly preparing for weeks of ground operations in Iran, while the US increases its military presence in the region, deploying thousands of troops.

Looking ahead, US economic data will be in focus this week. Attention will be on the March Manufacturing Purchasing Managers' Index (PMI) and the Nonfarm Payrolls (NFP) report.

Technical analysis: 100-day SMA in focus

From a technical perspective, the near-term bias for XAU/USD is turning neutral to mildly bullish, as prices move back toward the 100-day Simple Moving Average (SMA) after rebounding from the 200-day SMA last week.

Momentum indicators are also showing early signs of recovery. The Relative Strength Index (RSI) is hovering near the 40 mark, bouncing from oversold territory, suggesting that selling pressure may be easing.

Meanwhile, the Moving Average Convergence Divergence (MACD) remains in negative territory, with the MACD line below the signal line, but the fading histogram points to weakening downside momentum.

On the upside, a clear break above the 100-day SMA near $4,633 could open the door for a move toward the 50-day SMA around $4,958. On the downside, immediate support is seen in the $4,400-$4,300 zone, followed by the 200-day SMA near $4,123.