Gold Futures Slide as Oil Fuels Fed Rate Fears

Key Moments

Macro Backdrop Weighs on Gold

Gold (XAU/USD) starts the week under pressure, slipping beneath the $4,050 mark heading into the European session on Monday. The metal remains vulnerable to additional downside as the US Dollar (USD) holds broadly firmer, supported by renewed geopolitical risks and shifting interest rate expectations.

Rising tensions between the United States and Iran, combined with the closure of the Strait of Hormuz, have pushed crude oil prices higher and reignited concerns over inflation. The prospect of stronger energy-driven price pressures has reinforced expectations that the US Federal Reserve (Fed) may opt for higher interest rates, a scenario that tends to favor the USD and diminish the appeal of non-yielding assets such as gold.

Geopolitical Tensions and Oil Price Surge

The risk environment deteriorated after the US conducted a major round of strikes on Iran over the weekend, followed by Iranian missile attacks targeting US military bases in the Gulf. In addition, Iran’s Islamic Revolutionary Guard Corps (IRGC) fired at another commercial vessel in the Strait of Hormuz and declared the closure of this crucial maritime chokepoint.

These developments introduce further uncertainty in global energy markets and have triggered another leg higher in crude oil prices. The move intensifies worries over energy-related inflationary pressures and strengthens the market view that the Fed could push borrowing costs higher, reinforcing support for the USD and pressuring gold.

Fed Expectations, Yields, and the Dollar

According to the CME Group’s FedWatch Tool, market participants are currently assigning nearly a 90% probability to at least one Fed rate hike by the end of this year. This backdrop underpins elevated US Treasury yields and has helped the USD extend its rebound from more than a one-week low reached on Friday. Higher yields and a stronger dollar are combining to weigh further on bullion.

Despite this, USD buyers appear cautious, preferring to await additional clarity on the Fed’s policy outlook. Attention is therefore turning to Fed Chair Kevin Warsh’s upcoming congressional testimony later this week, which could provide fresh insight into how policymakers are assessing inflation and growth dynamics.

Inflation Data in Focus

Beyond Fed communication, traders are also closely watching incoming US inflation data. The Consumer Price Index (CPI) is scheduled for release on Tuesday, followed by the Producer Price Index (PPI) on Wednesday. These reports are expected to be pivotal for near-term USD performance and could set the tone for the next move in gold.

Given the current environment – characterized by higher yields, a firm USD, and renewed inflation concerns – the broader setup appears to favor sellers in XAU/USD. In this context, any short-term rebounds in gold are likely to encounter selling interest and face difficulty sustaining upside momentum.

Technical Picture: Key Levels for XAU/USD

From a technical standpoint, gold remains decisively below the 200-day Simple Moving Average (SMA), reinforcing its bearish bias within a downward-sloping parallel channel. The Relative Strength Index (RSI) is hovering near 40, while the Moving Average Convergence Divergence (MACD) histogram is mildly positive after retreating from recent highs. Together, these indicators point to only modest downside momentum rather than an aggressive selloff at this stage.

On the downside, important support is located at the $4,000 psychological area, followed by the year-to-date low in the $3,942 region. A clear break beneath these levels would open the door to the lower boundary of the descending channel, currently near $3,782.83. This zone may attract buying interest if selling accelerates.

On the upside, initial resistance is seen at the top of the channel, around $4,291.51. A move through this area would be required to alleviate immediate bearish pressure. Above that, the 200-day SMA, currently near $4,494.65, represents a more significant resistance band that would likely need to be reclaimed to signal a more durable shift to a bullish trend.