Gold seems vulnerable near three-week low amid firmer USD as focus shifts to FOMC
- Gold remains depressed for the second straight day as US-Iran peace talks uncertainty underpins the USD.
- The Hormuz standoff keeps geopolitical risks in play and lends additional support to the safe-haven buck.
- Bets for at least one Fed rate cut in 2026 might cap the USD ahead of FOMC policy meeting.
Gold (XAU/USD) maintains its offered tone through the first half of the European session and currently trades around the $4,630 area, or a three-week low touched earlier this Tuesday. The US Dollar (USD) regains some positive traction amid the uncertainty over the second round of US-Iran peace talks and turns out to be a key factor exerting pressure on the commodity. However, expectations for a less hawkish US Federal Reserve (Fed) could offer some support to the non-yielding bullion and help limit further losses ahead of the key central bank event risk.
Hopes for diplomatic efforts to end the Iran war receded after US President Donald Trump canceled his special envoy, Steve Witkoff, and Jared Kushner's planned visit to Pakistan. Meanwhile, Iran gave the US a new proposal that set aside discussion on the country's nuclear program until the war ends and disputes over shipping from the Gulf are resolved. Trump, however, is reportedly dissatisfied with the proposal as it does not adequately address nuclear issues. This, along with a standoff over the Strait of Hormuz, keeps geopolitical risks in play and underpins the USD's reserve currency status, weighing on Gold prices.
The upside for the USD, however, seems capped on the back of a repricing of a potential interest rate cut by the US central bank. According to the CME Group's FedWatch Tool, traders see a roughly 35% chance that the US central bank will lower borrowing costs by the end of this year. This might hold back the USD bulls from placing aggressive bets and limit the downside for Gold ahead of the crucial two-day FOMC meeting, starting this Tuesday. The focus, however, will be on the post-meeting press conference, where comments from the outgoing Fed Chair Jerome Powell will be scrutinized for cues about the future policy path.
Apart from this, fresh developments surrounding the Middle East crisis will play a key role in influencing the USD price dynamics and providing some meaningful impetus to the Gold price. The aforementioned fundamental backdrop, however, seems tilted in favor of the XAU/USD bears and backs the case for an eventual breakdown through a short-term trading range held since the early part of this month.
XAU/USD 4-hour chart
Gold bears have the upper hand while below 200-SMA on H4
Against the backdrop of recent failures to find acceptance above the 200-period Simple Moving Average (SMA) on the 4-hour chart, a convincing break below the trading range support near the $4,655 area could be seen as a fresh trigger for the XAU/USD bears. Moreover, the Relative Strength Index (RSI) hovers just below the midline near 41, while the Moving Average Convergence Divergence (MACD) histogram is negative with the MACD line under its signal. This suggests that downside momentum is still present, even if not aggressively so.
In the meantime, initial resistance is defined by the 200-period SMA at $4,723.13, and bulls would need to reclaim and hold above this barrier to alleviate the current pressure and open the way for a more sustained rebound. Furthermore, traders are likely to watch for fresh basing patterns or a turn higher in RSI and MACD before anticipating a durable floor.
(The technical analysis of this story was written with the help of an AI tool.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
