Gold seems vulnerable near daily low as Fed hike bets and geopolitical risks lift USD
- Gold struggles to capitalize on the previous day’s bounce from the lowest level since late March.
- The lack of progress in US-Iran peace talks underpins the USD, exerting pressure on the bullion.
- Fed rate hike bets further lend support to the USD and weigh on the non-yielding commodity.
Gold (XAU/USD) maintains its offered tone through the early European session on Tuesday and remains well within striking distance of the lowest level since March 30, set the previous day. Despite renewed hopes for a potential US-Iran peace deal, investors remain skeptical amid major disagreements over Tehran's nuclear program and the Strait of Hormuz. Furthermore, hawkish US Federal Reserve (Fed) expectations assist the US Dollar (USD) to regain positive traction and act as a headwind for the non-yielding bullion.
US President Donald Trump said on Monday that he is holding off a planned attack on Iran at the request of Qatar, Saudi Arabia, and the United Arab Emirates. Trump further added that negotiations are not taking place, fueling optimism over a long-elusive diplomatic agreement to end the Iran conflict. The market reaction so far has been muted amid mixed signals. In fact, Iranian President Masoud Pezeshkian responded to Trump’s “clock is ticking” warning and vowed not to bow before any power, and added that Tehran had entered the dialogue with dignity, authority, and the preservation of the nation’s rights. Trump, on the other hand, said that he has instructed the US military to remain prepared for a full-scale attack on Iran if a deal is not reached. This keeps geopolitical risks in play and underpins the USD's reserve currency status.
Meanwhile, markets have completely priced out any possibility of Fed rate cuts for the remainder of 2026. Instead, they are now betting on at least one interest rate hike before year-end amid rising energy and consumer inflation fears. The CME Group's FedWatch Tool indicates a nearly 40% chance that the US central bank will raise borrowing costs by 25 basis points (bps) at the December policy meeting. Adding to this, inflation and fiscal concerns keep the yield on the long-term 30-year US government bond near its highest level since 2023, which turns out to be another factor offering support to the Greenback and undermining demand for the Gold price. Traders, however, seem hesitant and look to the release of FOMC Minutes on Wednesday for more cues about the Fed's interest rate path before placing directional bets on the XAU/USD pair.
In the meantime, the market focus will remain on further developments surrounding the Middle East crisis, which could inject volatility across the global financial markets and provide some impetus to the precious metal. Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of bearish traders, suggesting that the path of least resistance for the Gold price is to the downside.
XAU/USD 1-hour chart
Gold could slide further towards retesting $4,500 horizontal support
From a technical perspective, the precious metal holds below the 100-hour Simple Moving Average (SMA), keeping the near-term bias bearish despite the recent rebound from lower levels. Adding to this, the Moving Average Convergence Divergence (MACD) remains in positive territory, but its latest reading at 3.32 hints at waning upside momentum. Meanwhile, the Relative Strength Index (RSI) around 51.7 suggests only modest bullish pressure rather than a decisive trend.
This, in turn, makes it prudent to wait for acceptance below the $4,500 psychological mark and some follow-through selling below the overnight swing low, around the $4,480 region, before positioning for deeper losses. On the topside, initial resistance is defined by the 100-hour SMA at $4,625.58, and a sustained break above this barrier would be needed to ease the current downside bias and open the way for a more constructive recovery.
(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.
