Gold struggles near daily low on firmer USD as traders keenly await US-Iran peace talks
- Gold meets with a fresh supply during the Asian session, though the downside seems limited.
- Inflation fears support US bond yields, underpinning the USD and weighing on the commodity.
- Rising Fed rate cut bets to cap gains for the buck and lend support to the non-yielding bullion.
Gold (XAU/USD) sticks to intraday losses below the $4,800 mark through the first half of the European session on Tuesday, though it holds above a one-week low touched the previous day. Investors remain skeptical about a potential US-Iran agreement amid the standoff over the Strait of Hormuz. The US Navy seized an Iranian-flagged cargo ship in the Gulf of Oman as part of its blockade. In response, Iran once again closed the strategic waterway, which acts as a tailwind for Crude Oil prices. This, in turn, revives inflationary concerns and supports the US Dollar (USD), exerting pressure on the commodity.
Any meaningful USD appreciation, however, seems elusive in the wake of diminishing odds for a rate hike by the US Federal Reserve (Fed). Instead, the CME Group's FedWatch Tool indicates that there is a roughly 45-50% chance of a Fed rate cut by the year-end, which should keep a lid on the USD and continue to act as a tailwind for the non-yielding Gold. Traders might also refrain from placing aggressive directional bets amid continuing uncertainty over whether talks to end the US-Iran war will take place. Hence, it will be prudent to wait for strong follow-through selling before positioning for any further downfall for the XAU/USD pair.
US President Donald Trump announced that US negotiators will travel to Pakistan for another round of negotiations with Iran, aiming to extend a fragile ceasefire that is set to expire on Wednesday. Iranian officials, on the other hand, are hesitant about further peace talks, citing the US blockade. In fact, Iranian Parliament speaker Mohammad Bagher Ghalibaf said that Iran will not accept negotiations while under threat. Moreover, Iran's Foreign Minister Abbas Araghchi said that continued violations of the ceasefire by the US are a major obstacle to continuing the diplomatic process. Reports, however, suggest that an Iranian delegation will travel to Islamabad for negotiations.
Hence, the market focus will remain glued to incoming headlines surrounding the US-Iran saga, which might continue to infuse volatility in the financial markets. Apart from this, trades on Tuesday will take cues from Fed Chairman-designate Kevin Warsh's testimony to grab some meaningful opportunities around the Gold price. Nevertheless, the aforementioned mixed fundamental backdrop warrants some caution before placing aggressive directional bets around the XAU/USD pair.
XAU/USD 4-hour chart
Gold bullish bias persists while above 200-EMA/50% Fibo. confluence resistance-turned-support
The precious metal holds a constructive near-term bias as it sits above the 200-period Exponential Moving Average (EMA) at $4,784.25. The 50.0% retracement level of the March downfall, at $4,762.13, adds a secondary layer of underlying demand beneath the EMA. Meanwhile, momentum gauges remain subdued rather than directional, with the Relative Strength Index (RSI) hovering near a neutral 51, and the Moving Average Convergence Divergence (MACD) indicator is marginally negative. This hints that bulls retain structural control but lack strong follow-through for now.
In the meantime, immediate support is seen at the 200-period EMA at $4,784.25 and then the 50.0% retracement at $4,762.13. A sustained break below this cluster would expose deeper Fibonacci supports at $4,607.05 and $4,415.17 ahead of the broader swing low region near $4,105.01. On the topside, initial resistance emerges at the 61.8% Fibo. retracement at $4,917.21, with further hurdles at the 78.6% level at $5,138.01 and the cycle high region at $5,419.25, where any rejection would likely cap the current bullish phase.
(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.
