Gold languishes near daily low; seems vulnerable amid Fed hike bets and bullish USD
- Gold meets with a fresh supply as geopolitical risks and hawkish Fed bets underpin the USD.
- Iran's uranium enrichment and control over the Strait of Hormuz remain key sticking points.
- The technical setup too seems tilted in favor of bears and backs the case for further losses.
Gold (XAU/USD) struggles near the daily low, though it manages to hold above the $4,500 psychological mark through the first half of the European session on Friday. The US Dollar (USD) maintains its recent strong gains to a six-week peak amid the Federal Reserve’s (Fed) hawkish outlook. Moreover, mixed signals over a potential US-Iran peace deal turn out to be another factor that benefits the Greenback's reserve currency status, which, in turn, is seen undermining demand for the commodity.
Market participants have completely priced out any possibility of a rate cut by the Fed for the remainder of 2026; instead, they are now betting on at least one rate hike before year-end amid rising energy prices and consumer inflation fears. Moreover, Minutes from the April 28–29 FOMC meeting released on Wednesday revealed officials leaning toward keeping rates elevated, or even raising them, if inflation continues to run persistently above the 2% target. The CME Group's FedWatch Tool indicates over a 60% chance that the US central bank will raise borrowing costs by 25 basis points (bps) at the December meeting. The outlook had been a key factor behind the recent surge in US Treasury bond yields, supporting the USD and weighing on the non-yielding Gold.
Meanwhile, a senior Iranian source said that no deal has been reached with the US, but the gaps in positions between the two sides have narrowed. However, Iran's uranium enrichment and Tehran's control over the critical Strait of Hormuz remain among the sticking points. US Secretary of State Marco Rubio warned that Iran’s desire to impose a toll on ships passing through the Strait was acting as a blockade to a potential peace agreement. US President Donald Trump also said that the US does not want tolls on the Strait of Hormuz and added that the US military will retrieve Iran's stockpile of highly enriched uranium. This keeps geopolitical risk premium in play and favors the USD bulls, suggesting that the path of least resistance for Gold is to the downside.
XAU/USD 4-hour chart
Gold's technical setup backs the case for further near-term depreciation
From a technical perspective, the XAU/USD pair is holding within a broader descending channel and below the 200-period Exponential Moving Average (EMA) on the 4-hour chart, keeping the near-term bias capped despite some stabilization. The top of the downward-sloping channel near $4,657.44 converges with the 200-period EMA to form a dense overhead supply area. This, in turn, suggests that recovery attempts are likely to struggle while the Gold price remains under this band.
Meanwhile, the Moving Average Convergence Divergence (MACD) indicator has turned positive, while the Relative Strength Index (RSI) hovers around 45. Mixed momentum indicators hint at easing downside momentum, though they are not yet signaling a decisive bullish shift against the dominant structural downtrend. Hence, a clear break above the aforementioned clustered resistance zone would be needed to relieve the current bearish pressure.
On the downside, the lower boundary of the parallel channel near $4,362.54 acts as the next meaningful support. A sustained break beneath this floor would reinforce the broader bearish structure and open the way for deeper losses in the coming sessions.
(The technical analysis of this story was written with the help of an AI tool.)
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.
