Gold bounces off two-week low; not out of the woods yet amid bullish USD
- Gold retains its negative bias on Friday as rising US-Iran tensions continue to underpin the US Dollar.
- Inflation fears temper dovish Fed bets, further benefiting the buck and weighing on the commodity.
- The technical setup favors the XAU/USD bears and backs the case for a further depreciating move.
Gold (XAU/USD) recovers slightly from a nearly two-week low, touched earlier this Friday, though it lacks follow-through and remains below the $4,700 mark through the first half of the European session.
Intensifying US-Iran tensions over the Strait of Hormuz and the lack of progress in peace talks keep investors on edge. Moreover, reviving inflationary fears temper expectations for a more dovish US Federal Reserve (Fed) and underpin the US Dollar (USD). This, in turn, is seen acting as a tailwind for Gold, which seems poised to register losses for the first time in five weeks.
Signs of friction between the US and Iran remain due to the American naval blockade of Iranian ports. In fact, Iran's Foreign Minister, Abbas Araghchi, called the blockade an act of war. Moreover, Iran’s chief negotiator, Mohammad Bagher Ghalibaf, said that a complete ceasefire only makes sense if it is not violated by the maritime blockade. Meanwhile, US President Donald Trump ordered the US Navy to shoot and kill any boat laying mines in the critical shipping channel. This dampens hopes for a durable de-escalation and continues to underpin the Greenback's global reserve currency status, exerting some pressure on Gold prices.
Meanwhile, continued disruptions to energy supplies through the strategic waterway remain supportive of elevated Crude Oil prices. This revives worries about a significant surge in global inflation and could prompt a more hawkish shift from major central banks, including the US Federal Reserve (Fed). The current market pricing indicates over 80% chance for the Fed interest rates to remain at the current range in 2026, with the possibility of only one 25-basis-point (bps) rate cut this year around 10%, as per the FedWatch tool. The outlook acts as a tailwind for US Treasury bond yields and the USD. This turns out to be another factor that contributes to the offered tone surrounding the non-yielding Gold and backs the case for further losses.
Friday's US economic docket features the revised University of Michigan US Consumer Sentiment Index. The focus, however, remains glued to geopolitical developments, which might continue to infuse volatility across the global financial markets and produce some meaningful trading opportunities around the Gold. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the XAU/USD pair remains to the downside. Hence, any attempted recovery might be seen as a selling opportunity and runs the risk of fizzling out rather quickly.
XAU/USD 4-hour chart
Gold might struggle to register any meaningful recovery amid a bearish setup
The commodity maintains a bearish near-term bias beneath the 200-period Exponential Moving Average (EMA) and is now looking to extend the slide below the rising channel floor at $4,680.47. The move away from the channel support hints at a loss of upside momentum.
Meanwhile, the Relative Strength Index (RSI) at 35.72 sits near oversold territory, and the Moving Average Convergence Divergence (MACD) remains negative with a sub-zero line reading around -4.92. This reinforces persistent downside pressure rather than an imminent reversal.
Hence, further weakness would leave XAU/USD vulnerable to exploratory downside. On the upside, immediate resistance emerges around the former channel bottom at $4,680.47, with a stronger cap at the 200-period EMA near $4,778.44, and the upper boundary of the ascending channel higher up at roughly $4,901.82. Only a recovery back above the said barriers would begin to alleviate the current bearish tone.
(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.
