Gold Holds Below $4,100 as Fed, Geopolitics Limit Gains

Key Moments

Gold Price Action

Gold (XAU/USD) attempted to stabilize after setting a new year-to-date low during the Asian session on Thursday, but the metal struggled to extend its rebound. Heading into the European session, spot prices remained capped below the $4,100 level, with conflicting macro and geopolitical signals restraining both buyers and sellers.

The US Dollar stayed on the back foot after a softer Core US Consumer Price Index (CPI) print alleviated some fears of an uncontrolled inflation spike, lending modest support to gold. However, expectations for a more hawkish US Federal Reserve, combined with renewed friction between the US and Iran, underpinned the Greenback and prevented a stronger move higher in bullion.

Inflation Data and Fed Expectations

According to the US Labor Department, core CPI – which excludes food and energy – slowed to 0.2% in May on a month-over-month basis from 0.4% previously. On an annual basis, core inflation was reported at 2.9%, in line with consensus estimates.

Headline CPI moved in the opposite direction, rising from a 3.8% year-over-year pace in April to 4.2% in May. That was the highest reading in three years and was driven by a 23.5% surge in energy prices. The jump in energy costs helped stoke broader inflation concerns, even as core pressures moderated.

These dynamics have reinforced expectations that the Federal Reserve could lean further toward tightening. Market pricing currently reflects a 70% probability of at least one Fed rate hike this year, supporting elevated US Treasury yields and favoring USD strength over time. This environment continues to point to downside risks for gold, despite the latest short-term bounce.

US-Iran Tensions and Oil Market Impact

Geopolitical risk also remained in focus. Iran declared the closure of the Strait of Hormuz after the US conducted a fresh series of strikes across the country under orders from US President Donald Trump. Iran’s joint military command warned that its forces would deliver a “crushing and decisive” response to any “aggression” from the US in the region.

The developments helped crude oil prices recover from a two-month low reached on Tuesday, as traders weighed the risk of supply disruptions through a critical shipping chokepoint. The rebound in oil prices added to inflation worries and supported the case for more hawkish central bank stances, indirectly constraining gold’s appeal as higher yields and a firmer USD remain a headwind.

Data Ahead and Market Drivers

Attention now turns to the upcoming US Producer Price Index (PPI) release later in the day, which could provide additional insight into upstream price pressures and the Fed’s policy path. At the same time, any further escalation or de-escalation in the Middle East crisis is likely to inject volatility into global markets.

Both factors are expected to be key drivers for USD moves, which in turn should shape near-term trading opportunities in XAU/USD.

Technical Picture: Bias Still Bearish

From a chart perspective, gold remains under pressure following a clean break below the closely watched 200-day Simple Moving Average (SMA) and a descending channel. These violations support a bearish technical stance on XAU/USD. The Moving Average Convergence Divergence (MACD) indicator stays deeply negative, underscoring the prevailing downtrend.

At the same time, the Relative Strength Index (RSI) has fallen into oversold territory. This suggests that while sellers remain in control, the speed of further declines could start to slow as conditions become stretched.

Key Technical Levels

On the upside, the metal now faces several closely aligned resistance zones that may limit any corrective recovery:

As long as gold trades below this cluster of resistance levels, the dominant trend remains to the downside. Market participants are likely to view any rallies as corrective in nature rather than the start of a sustained bullish reversal.

Federal Reserve: Key Concepts

Fed Mandate and Impact on the US Dollar

Monetary policy in the United States is determined by the Federal Reserve. The Fed operates under a dual mandate of price stability and maximum employment. Its primary policy lever is the setting of interest rates.

When inflation is running above the Fed’s 2% objective and prices are rising too quickly, the central bank raises interest rates, increasing borrowing costs across the economy. Higher yields tend to support the US Dollar, as they can attract foreign capital.

If inflation falls below 2% or the unemployment rate is considered too high, the Fed may cut interest rates to stimulate borrowing and economic activity, which can weigh on the Greenback.

Frequency of Fed Meetings

The Federal Reserve holds eight scheduled monetary policy meetings each year. During these meetings, the Federal Open Market Committee (FOMC) reviews economic and financial conditions and decides on appropriate policy actions.

The FOMC consists 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 serve one-year rotating terms.

Quantitative Easing (QE)

In atypical or stressed conditions, the Fed may employ Quantitative Easing (QE). QE is designed to significantly increase the flow of credit in a financial system that is not functioning smoothly.

It is a non-standard policy tool used in crisis situations or when inflation is very low. Under QE, the Fed creates additional US Dollars and uses them to purchase high-grade bonds from financial institutions. This expansion of liquidity generally exerts downward pressure on the US Dollar.

Quantitative Tightening (QT)

Quantitative Tightening (QT) is the opposite of QE. Under QT, the Federal Reserve stops purchasing bonds from financial institutions and allows the principal from maturing securities in its portfolio to roll off without reinvestment.

This process gradually reduces liquidity in the financial system and is typically considered supportive for the value of the US Dollar.