Gold Slips as Dollar Gains on Fed, Geopolitical Risks

Key Moments

Gold Weakens as Dollar Demand Builds

Gold (XAU/USD) extended its intraday decline on Monday, slipping to a new daily low slightly under the $4,650 area heading into the European session. The move came alongside a solid pickup in demand for the US Dollar (USD), which drew support from persistent geopolitical risks and expectations that the Federal Reserve may lean more hawkish. The stronger USD diverted flows away from the non-yielding metal and weighed on prices.

Ongoing geopolitical uncertainty continued to reinforce the USD’s appeal as the dominant reserve currency. At the same time, shifting interest-rate expectations in favor of additional Fed tightening added another layer of support for the greenback, pressuring Gold in the process.

US-Iran Tensions and Oil Rally Stoke Inflation Fears

Early optimism about a potential peace agreement between the United States and Iran, and a broader de-escalation, faded quickly as fresh hostilities resurfaced in the Strait of Hormuz. The situation deteriorated further after both US President Donald Trump and Iran dismissed each other’s peace proposals aimed at ending the war and gradually reopening the Strait of Hormuz, amid sharp divisions over Iran’s nuclear program.

According to the Wall Street Journal, Iran rejected US demands to dismantle nuclear facilities and halt uranium enrichment for 20 years. Trump responded by labeling the Iranian position as “totally unacceptable.” These developments kept geopolitical risks elevated and restored safe-haven interest in the USD on Monday, which in turn exerted additional downside pressure on Gold prices.

The renewed tensions also helped drive Crude Oil prices higher, reviving concerns about inflation. Combined with strong US labor-market data released on Friday, this backdrop supported the case for a more hawkish Fed stance. The latest US Nonfarm Payrolls (NFP) report showed the economy added 115K jobs in April, above expectations, while the Unemployment Rate remained at 4.3%.

Market pricing, as reflected by CME Group’s FedWatch Tool, indicated that participants were assigning just over a 20% probability that the Fed would implement at least one 25-basis-point (bps) rate hike by the end of this year. This outlook favored USD bulls and was seen as a headwind for Gold, reinforcing the downside bias for the non-yielding asset.

Data Calendar Keeps Traders Cautious

Despite the softer tone in Gold, market participants were hesitant to adopt aggressive positions. Many opted to stay on the sidelines ahead of key US inflation releases, with the Consumer Price Index (CPI) due on Tuesday and the Producer Price Index (PPI) on Wednesday. These reports were expected to help refine expectations around Fed policy and, by extension, the USD and Gold trajectories.

Beyond inflation data, investors were also awaiting US monthly Retail Sales figures and scheduled comments from influential Federal Open Market Committee (FOMC) members. These events were likely to provide additional guidance for the USD and could introduce further volatility into Gold trading.

At the same time, the absence of strong follow-through selling in XAU/USD suggested some caution was warranted before concluding that the recent rebound from the $4,500 psychological level – a more than one-month low seen last week – had fully exhausted its momentum.

Technical Picture: Key Levels on the XAU/USD 4-Hour Chart

From a technical standpoint, Gold maintained a broadly neutral bias after repeatedly failing last week to break above the 61.8% Fibonacci retracement of the April-May decline. The subsequent pullback held near the 200-period Simple Moving Average (SMA) on the 4-hour chart, which emerged as an important near-term reference level.

Momentum indicators painted a mixed picture. The Relative Strength Index (RSI) was hovering just above the 50 mark, pointing to a modest positive tilt, while the Moving Average Convergence Divergence (MACD) remained in negative territory below the zero line, suggesting that bullish momentum had not yet firmly taken hold.

Gold Technical Levels

On the upside, the 50.0% retracement near $4,696 was expected to cap initial rallies, followed by obstacles at the 61.8% level around $4,743 and the 78.6% retracement near $4,810. A decisive move above these resistance levels would expose the recent cycle high close to $4,894.

On the downside, the 200-period SMA around $4,675 served as immediate support, ahead of the 38.2% Fibonacci retracement zone near $4,650. Below that, further support was seen at the 23.6% retracement around $4,592, with additional protection provided by the structural low region anchored around $4,498.