Gold struggles to lure buyers as Hormuz risks and Fed hike bets counter softer USD
- Gold remains on the defensive as bulls seem hesitant despite a softer USD.
- US-Iran tensions, inflation fears, and Fed hike bets limit deeper USD losses.
- The technical setup backs the case for further depreciation for the bullion.
Gold (XAU/USD) struggles to capitalize on the previous day's bounce from the $4,020 area, or a one-week low, and oscillates in a narrow range during the Asian session on Thursday. The US Dollar (USD) remains on the back foot in the absence of a notable hawkish shift in the FOMC Minutes and acts as a tailwind for the bullion. However, renewed US-Iran hostilities revive inflation fears and bolster bets on a US Federal Reserve (Fed) rate increase in 2026. This helps limit the downside for the USD and continues to undermine the non-yielding yellow metal.
The Minutes from the June 16–17 FOMC meeting, released on Wednesday, revealed that policymakers were divided with regard to the direction of interest rates. The minutes further stated that many participants indicated the appropriate level of the federal funds rate would be within or slightly below the current target range at the end of this year. This comes on top of last Thursday's soft US Nonfarm Payrolls (NFP) report and does little to alter Fed hike bets. Fed officials, however, noted that the upside risk to inflation remains elevated and indicated that some policy firming would likely be warranted to return inflation to 2%.
Moreover, traders are still pricing in around a 70% chance that the US central bank will raise borrowing costs in September. This, along with a further escalation of tensions between the US and Iran, holds back the USD bears from placing aggressive bets. In the latest development, the US military unleashed a new wave of strikes against Iran in retaliation for Tehran’s attacks on commercial ships in the Strait of Hormuz. Iran retaliated by continuously targeting US military installations and assets across Bahrain and Kuwait. Adding to this, US President Donald Trump said on Wednesday that the ceasefire with Iran was now over.
The aforementioned fundamental backdrop favors the USD bulls, suggesting that any recovery attempt in the Gold price is more likely to be sold into and remain limited. Traders now look forward to the release of the Weekly Initial Jobless Claims data from the US, which, along with speeches from influential FOMC members, will drive the USD demand. The focus, however, will remain glued to the Middle East saga, which might continue to infuse volatility in global financial markets and produce some meaningful trading opportunities around the precious metal.
XAU/USD daily chart
Gold bears have the upper hand below 200-day SMA and within descending channel
From a technical perspective, the XAU/USD pair keeps a bearish near-term bias beneath the 200-day Simple Moving Average (SMA) and within a downward parallel channel. Meanwhile, the Moving Average Convergence Divergence (MACD) has turned positive, and the Relative Strength Index (RSI) is at 40.26, having recovered only modestly from oversold territory. This hints that any rebound would face strong resistance at the channel top near $4,247.94.
A sustained break above the channel barrier would be needed to ease the current bearish pressure, ahead of a more robust barrier at the 200-day SMA around $4,492.08. On the downside, the lower boundary of the descending channel at $3,811.93 emerges as the next significant support, where bulls would be expected to defend the broader uptrend if the ongoing correction extends.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of 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.
