Gold steadies above $5,000; bulls seem hesitant as USD strengthens ahead of Fed decision
- Gold attracts some safe-haven flows amid a further escalation of tensions in the Middle East.
- Inflation fears temper Fed rate cut bets, underpinning the USD and capping the commodity.
- Traders seem reluctant to place aggressive bets ahead of this week’s key central bank events.
Gold (XAU/USD) sticks to modest intraday gains comfortably above the $5,000 psychological mark through the first half of the European session, though it lacks bullish conviction amid mixed cues. There are a few signs that the US-Israeli war on Iran is ending soon amid the escalating conflict between Israel and Hezbollah in Lebanon. In fact, the Israeli military said that it is expanding ground assault in southern Lebanon – an area where the militant group Hezbollah is known to hold sway. This keeps geopolitical risks in play and turns out to be a key factor lending some support to the safe-haven precious metal.
As the war enters its third week, Iran continues to attack civilian infrastructure – airports, ports, oil facilities, and commercial hubs – in the six Gulf states with missiles and drones. Furthermore, the disruption of shipping through the Strait of Hormuz – a key chokepoint for a fifth of global oil supply – remains supportive of elevated Crude prices. This continues to fuel inflationary concerns, which could force the US Federal Reserve (Fed) to keep interest rates higher for longer and even consider rate hikes. The outlook, in turn, caps the non-yielding Gold and warrants caution for bulls.
Meanwhile, hawkish implications of the ongoing conflict in the Middle East revive the US Dollar (USD) demand following the overnight pullback from its highest level since May 2025 and contribute to keeping a lid on the XAU/USD pair. Traders, however, might opt to wait for the outcome of a two-day FOMC meeting on Wednesday before placing directional bets around the Gold. Moreover, policy updates by other major central banks – the European Central Bank (ECB), the Bank of Japan (BoJ), and the Bank of England (BoE) – should influence the XAU/USD pair during the latter part of the week.
XAU/USD 4-hour chart
Gold needs to strengthen above 200-SMA on H4 to back case for further intraday move up
The recent breakdown through the 200-period Simple Moving Average (SMA) on the 4-hour chart and acceptance below the 38.2% Fibonacci retracement level of the February-March move up favors the XAU/USD bears. Moreover, the Moving Average Convergence Divergence (MACD) indicator (12, 26, 9) remains below zero with the line under its signal and a negative histogram, signaling persistent downside momentum. The Relative Strength Index (RSI) at 41 leans toward the weak side of neutral and aligns with sellers retaining the initiative for now.
Immediate resistance emerges at the 38.2% Fibo. retracement near $5,040, followed by the 200-period SMA around $5,063, with a break above this zone needed to ease bearish pressure and open the way toward the 23.6% Fibo. retracement at $5,186. On the downside, initial support is located at the psychological $5,000 area, ahead of the recent lows near $4,995–$4,985, where failure would expose deeper retracement toward the 50.0% retracement level at $4,921.41. A sustained close back above the 200-period SMA would weaken the bearish tone, while continued rejection below $5,040 keeps the focus on lower supports.
(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.
