Gold Pulls Back as Dollar, Yields Jump After Trump Talk

Key Moments

Geopolitical Tone Shift Weighs on Gold

Gold (XAU/USD) is under pressure on Thursday, ending a four-session advance as earlier hopes for a swift resolution to the US-Israel conflict with Iran lost momentum. The reversal followed remarks from US President Donald Trump that suggested military operations would continue, prompting a reassessment of risk across markets.

At the time of writing, XAU/USD is hovering around $4,612, almost 3.0% lower on the day, after retreating from a two-week peak near $4,800.

Trump Remarks Boost USD and Yields as Oil Climbs

In an address, President Trump stated that the United States is “on track to complete all of America’s military objectives shortly — very shortly,” while also warning that Washington would “hit them extremely hard over the next two to three weeks” and “bring them back to the stone ages.” He further noted that talks are ongoing, saying, “We have all the cards; they have none.”

The comments shifted sentiment toward risk aversion, lifting the US Dollar and US Treasury yields. The move higher in both has undermined demand for Gold. At the same time, Oil prices resumed their upward trajectory, with the reopening of the Strait of Hormuz remaining a central concern.

Hawkish Policy Expectations Continue to Cap Gold

Concerns over rising inflation and growth risks tied to elevated energy prices are reinforcing a more hawkish stance from major central banks, especially the Federal Reserve (Fed). This is limiting the appeal of Gold as a safe-haven asset.

The prevailing “higher-for-longer” interest rate theme has been a persistent drag on the non-yielding metal since the onset of the Middle East conflict, as elevated rates increase the opportunity cost of holding Gold. According to the CME FedWatch Tool, market participants broadly anticipate that the Fed will maintain its policy rate in a 3.50%-3.75% range this year, versus prior expectations for at least two rate cuts.

Fed policymakers have adopted a cautious tone this week, indicating little urgency to alter rates even as energy-driven inflation pressures build.

St. Louis Fed President Alberto Musalem said on Wednesday that monetary policy is “well positioned” and should stay in place “for some time,” while highlighting that risks to both inflation and employment are skewed to the downside and characterizing the outlook as “highly uncertain.”

Kansas City Fed President Jeffrey Schmid commented on Tuesday that the Fed must “follow through with policy actions to validate stable medium- and long-term inflation expectations,” adding that it “can’t assume inflation from higher oil prices will be transitory.”

Technical Picture: Bearish Flag Formation on XAU/USD

From a technical standpoint, XAU/USD retains a negative near-term bias. On the 4-hour chart, the price has been unable to hold above the 100-period Simple Moving Average (SMA) located around $4,711, preserving the downside tilt.

Price behavior suggests the development of a bearish flag structure, with Gold now trading close to the lower boundary of the pattern after failing at the upper trendline. Momentum indicators also reflect waning bullish strength: the Relative Strength Index (RSI) is retreating toward the 50 level from overbought conditions, while the Moving Average Convergence Divergence (MACD) histogram has turned marginally negative as the MACD line slips below the signal line.

Key Technical Levels for XAU/USD

Immediate support is located around $4,600, followed by the 50-period SMA near $4,535. A decisive move below this area could expose further weakness toward the $4,200-$4,000 band.

On the topside, a sustained break above the 100-period SMA around $4,711 and the $4,800 threshold could clear the path for a push toward resistance near $5,000.

Gold Market Structure and Macro Relationships

Gold has long held a central role as both a store of value and a medium of exchange. Beyond its use in jewelry, it is widely regarded as a safe-haven asset, often favored during periods of market stress. The metal is also commonly viewed as a hedge against inflation and weakening currencies, since it is not tied to a particular government or issuer.

Central banks are the largest holders of Gold. In an effort to bolster confidence in their currencies during periods of instability, they frequently diversify their foreign exchange reserves by adding Gold, which can help reinforce perceptions of economic and fiscal strength. Substantial Gold holdings can enhance trust in a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council, marking the highest annual purchase since records began. Institutions from emerging markets, including China, India and Turkey, are rapidly increasing their Gold reserves.

Gold typically shows an inverse relationship with the US Dollar and US Treasuries, both of which are key reserve and safe-haven assets. When the Dollar weakens, Gold prices often climb as investors and central banks rebalance their holdings during bouts of volatility. The metal also tends to move opposite to risk assets: strong equity markets can pressure Gold, while risk-off episodes and equity sell-offs tend to support it.

A wide array of macro factors can drive Gold prices. Geopolitical uncertainty or concerns over a severe economic downturn can fuel rapid appreciation due to its safe-haven characteristics. As a non-interest-bearing asset, Gold generally benefits from lower interest rates, whereas higher borrowing costs usually weigh on prices. Nonetheless, the dominant driver often remains the US Dollar, as Gold is priced in USD (XAU/USD). A firm Dollar tends to restrain Gold, while a weaker greenback typically provides a tailwind for the metal.