Gold Edges Up on Fed Uncertainty, Weaker Dollar

Key Moments

Gold Supported by Softer Dollar and Diplomacy Expectations

Gold (XAU/USD) maintains a constructive tone in Asian trading on Tuesday, holding near the $4,775 level and posting gains of over 0.65% on the day. The metal extends the prior session’s advance, which began from just below $4,650.

Market participants appear encouraged that diplomatic efforts between the United States and Iran could continue, even after peace talks over the weekend failed to deliver a resolution. This sentiment, together with lingering uncertainty surrounding the trajectory of US Federal Reserve interest rate decisions, is putting pressure on the US Dollar (USD) and supporting demand for bullion.

US Vice President JD Vance, speaking in an interview on Fox News, adopted a guardedly positive stance on discussions with Iran, indicating that meaningful headway has been made despite the absence of a final deal. Vance also commented that the “framework for a comprehensive agreement is achievable if Iran is willing to take the next step.” The prospect of further talks is underpinning a generally constructive risk backdrop, eroding some of the Greenback’s appeal as a reserve asset and favoring USD-priced commodities such as gold.

Inflation Concerns and Fed Outlook Undermine the Dollar

At the same time, the risk of an energy shock from an escalating Middle East conflict continues to fuel fears of renewed inflationary pressures. Data released on Friday showed US consumer inflation in March rising at the fastest pace in nearly four years, driven by war-related gains in energy prices. This has turned attention back to the possibility of additional rate hikes later this year.

Despite that backdrop, market-based expectations reflected in the CME Group’s FedWatch Tool point to a 30% probability of a 25-basis point rate cut in December. This pricing dynamic is exerting added downside pressure on the USD and, in turn, supporting the non-yielding metal.

Geopolitical Tensions in the Strait of Hormuz Cap Bullion Upside

In the latest dealings, XAU/USD has pushed up toward the $4,777 region, though the advance has lacked strong bullish follow-through. Persistent instability in the Strait of Hormuz is restraining more aggressive selling of the dollar and limiting gold’s rally.

US President Donald Trump stated that a U.S. Navy blockade of the key shipping channel has “officially started” and pledged to destroy any nearby Iranian warships. Iran responded with threats against all ports in the Persian Gulf and the Gulf of Oman. These developments keep geopolitical risk elevated, tempering both USD downside and further near-term gains in bullion.

Technical Landscape: Key Levels for XAU/USD

Following Monday’s rebound, a sustained move above the 50% retracement of the March decline is acting as an important signal for short-term XAU/USD buyers. Even so, the broader picture remains constrained beneath the 200-period Simple Moving Average (SMA) on the 4-hour chart at $4,854.58, leaving the overall bias only mildly constructive.

The Relative Strength Index (RSI) near 57 is tilted slightly to the bullish side of neutral, while the Moving Average Convergence Divergence (MACD) histogram has narrowed toward the zero line. This pattern indicates that downward momentum is fading, but without a decisive confirmation of a trend reversal.

From a tactical standpoint, any further advance is expected to initially run into resistance around the 200-period SMA near $4,855, followed by the 61.8% retracement at $4,913. A clear break above $4,913 would pave the way for a move toward $5,133 and ultimately the $5,413 cycle peak.

On the downside, first-layer support comes in at the 50% Fibonacci retracement around $4,759. Below that, additional demand is anticipated at the 38.2% retracement near $4,604 and then $4,413. A sustained move under those levels would expose the broader base zone near $4,104.

Fed Policy Framework: Background Notes

Monetary policy in the United States is set by the Federal Reserve (Fed), which operates under a dual mandate of price stability and maximum employment. The primary lever for meeting these objectives is the adjustment of interest rates.

When inflation rises too rapidly and exceeds the Fed’s 2% target, policymakers raise interest rates, increasing borrowing costs across the economy. This typically supports the US Dollar (USD) by making US assets more attractive to international investors. Conversely, when inflation dips below 2% or the unemployment rate is elevated, the Fed may cut rates to stimulate borrowing and activity, a move that usually weighs on the Greenback.

Fed Meetings and Balance Sheet Tools

The Federal Open Market Committee (FOMC) convenes eight times per year to review economic conditions and determine the appropriate policy stance. The committee includes twelve 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 rotate annually.

In periods of severe stress or unusually low inflation, the Fed can deploy unconventional tools. One such measure is Quantitative Easing (QE), under which the central bank significantly expands the supply of credit in a stalled financial system. QE involves creating additional US Dollars to purchase high-grade bonds from financial institutions, a process that generally exerts downward pressure on the currency. This approach was used during the Great Financial Crisis in 2008.

The opposite policy, Quantitative Tightening (QT), occurs when the Fed halts bond purchases and allows holdings to mature without reinvestment. This reduction in balance sheet support tends to be positive for the US Dollar.