Gold Nears Gains but Strong Dollar Caps Further Upside

Key Moments

Gold Holds Modest Gains After Bounce From Two-Month Low

Gold (XAU/USD) trades with a slight upside bias during the Asian session on Friday, attempting to extend the prior day’s strong recovery from the $4,367-$4,366 band, its weakest level since March 27. The metal is quoted just above the $4,500 psychological threshold, but buying interest remains limited as market participants wait for clearer signals on the evolving US-Iran peace process before committing to fresh directional positions.

Iran Ceasefire Draft Eases Oil Fears but Optimism Remains Fragile

Axios, citing two US officials, reported that the United States and Iran have reached a draft arrangement to prolong the current ceasefire by 60 days. This development helps ease concerns about long-lasting disruptions to regional oil shipments and keeps Crude Oil prices pinned near their monthly lows, which in turn moderates expectations for further rate hikes.

The improved tone around the ceasefire also weighs to some extent on the US Dollar’s (USD) role as a reserve asset, providing a supportive backdrop for Gold prices. However, the reported proposal still needs final sign-off from US President Donald Trump, and investor confidence remains fragile given deep divisions between Washington and Tehran on the nuclear file and the Strait of Hormuz.

Lingering doubts about securing a comprehensive deal to end a three-month-old conflict, coupled with the risk of renewed open confrontation between the US and Iran, are limiting any sustained risk-on move. This background helps contain more pronounced USD losses and simultaneously restrains Gold’s upside potential.

Stronger US Inflation Data Reinforce Fed Hike Expectations

Dollar bears are also cautious following a pickup in US inflation to the fastest pace in three years, largely reflecting higher energy prices linked to the Middle East conflict. On Thursday, the US Bureau of Economic Analysis (BEA) reported that the Personal Consumption Expenditures (PCE) Price Index rose at a 3.8% year-on-year rate in April, up from 3.5% in the prior month. The core PCE measure, which excludes food and energy, increased by 3.3%, in line with expectations.

These readings strengthened the view that the US Federal Reserve (Fed) may need to maintain elevated interest rates for a longer period in order to counter persistent inflation, even as growth shows signs of cooling. The preliminary estimate for US Gross Domestic Product (GDP) indicated a 1.6% annualized expansion in the first quarter of 2026, marking a downward revision from the earlier 2.0% estimate.

Despite the softer growth figure, market participants continue to anticipate that the Fed will lift borrowing costs again by the end of this year amid ongoing price pressures. According to the CME Group’s FedWatch Tool, current pricing reflects roughly a 50% probability of a 25-basis-point increase in 2026. This backdrop argues for caution before positioning for a significant decline in the USD or adopting aggressive long positions in non-yielding Gold.

Technical Picture: Rebound Within a Bearish-leaning Structure

The XAU/USD pair showed resilience on Thursday after briefly slipping below the 200-day Simple Moving Average (SMA), a key longer-term technical reference, and rebounded from the lower boundary of a short-term descending channel. This move helps preserve the broader uptrend, but the absence of strong follow-through buying suggests that bullish conviction remains limited.

The Moving Average Convergence Divergence (MACD) indicator remains in negative territory, while the Relative Strength Index (RSI) hovers near 42, pointing to muted downside momentum that has not yet reached oversold conditions. Price action remains capped well beneath the 50-day SMA at $4,627.51 and the descending channel resistance near $4,667.32, maintaining a generally bearish, constrained tone for the metal.

On the downside, initial support is located at the longer-term 200-day SMA at $4,405.20, followed by the floor of the descending channel near $4,348.84. A clear and sustained break below the latter would strengthen the prevailing bearish bias and potentially open the way for a more pronounced corrective move lower in Gold.

(The technical analysis of this story was written with the help of an AI tool.)

Federal Reserve: Structure, Tools, and Impact on the US Dollar

Monetary policy in the United States is set by the Federal Reserve (Fed), which operates under a dual mandate of maintaining price stability and promoting maximum employment. The primary instrument for achieving these objectives is the management of short-term interest rates.

When inflation runs above the Fed’s 2% target and prices are rising too quickly, the central bank raises interest rates, pushing up borrowing costs across the economy. Higher rates tend to support the US Dollar (USD), as they can make USD-denominated assets more attractive to international investors.

Conversely, when inflation is below 2% or the Unemployment Rate is elevated, the Fed may lower interest rates to stimulate borrowing and economic activity, a dynamic that typically weighs on the Greenback.

Fed Meetings, QE, and QT

The Federal Open Market Committee (FOMC) meets eight times per year to review economic conditions and set monetary policy. The committee is composed of 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 into voting roles for one-year terms.

In times of severe stress or exceptionally low inflation, the Fed can use Quantitative Easing (QE), a non-standard policy tool designed to increase the flow of credit in a stalled financial system. Under QE, the central bank effectively creates additional Dollars to purchase high-grade bonds from financial institutions, a process that generally puts downward pressure on the USD.

The reverse process, known as Quantitative Tightening (QT), occurs when the Fed stops buying bonds and allows its holdings to run off without reinvestment. QT is usually associated with a firmer US Dollar as liquidity is withdrawn from the system.