Gold Trims Gains as Oil and Dollar Recover Before Fed

Key Moments

Gold Gives Back Part of Opening Gap

Gold prices started the week with a bullish gap on Monday, but the advance lost momentum as initial optimism over a temporary pause in hostilities between the United States and Iran faded and Oil prices bounced from intraday lows. At the time of writing, XAU/USD traded around $4,083 after a short-lived move above $4,100, showing a 0.77% gain on the session.

The early bid in Gold was supported by expectations of a pause in attacks, but that narrative weakened as geopolitical headlines shifted and energy markets reversed higher. The metal subsequently retraced part of its initial rise, remaining confined within a well-defined trading band.

Geopolitics and Oil Move Back to the Fore

US Ambassador to the United Nations Mike Waltz said President Donald Trump is allowing space for negotiations while maintaining that “all military options” remain available. Tehran, for its part, indicated it would hold off on new attacks as long as Washington did the same.

Oil prices initially opened sharply lower at the start of the week on hopes that a pause in hostilities could alleviate supply risks. Those losses were quickly pared as buyers stepped back in, given that the broader geopolitical backdrop remains uncertain. Iranian Foreign Ministry spokesperson Esmaeil Baghaei stated that conditions in the Strait of Hormuz had not changed and that the key shipping lane remained closed.

West Texas Intermediate (WTI) crude traded near $83 per barrel after recovering from an intraday trough of $81.28, although it was still down more than 6% on the day.

Gold’s Role Shifts as Focus Turns to Inflation and the Fed

Price action in Gold once again underscored how the metal has diverged from its conventional safe-haven behavior since the US-Iran war began. Instead of tracking risk sentiment alone, moves have been increasingly driven by the inflationary implications of higher Oil prices and what that means for Federal Reserve (Fed) policy expectations.

The Fed’s interest rate decision on Wednesday is the central event on the calendar, followed by the release of US Personal Consumption Expenditures (PCE) inflation data on Thursday. The central bank is anticipated to keep rates unchanged, but market participants still assign a 33% probability to a rate hike, based on the CME FedWatch Tool. The implied likelihood of a rate increase in September is near 79%.

The prospect of further tightening continues to weigh on non-yielding assets such as Gold, while the US Dollar remains underpinned by expectations of a hawkish Fed stance and ongoing tensions in the Middle East.

Dollar Index Firms as Markets Price Fed Path

The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, traded around 101.40 after climbing from an intraday low of 101.12.

Strategists at OCBC note that “a hold accompanied by hawkish guidance would likely push expected rate hikes further out the curve without materially altering the roughly 55 [bps] of cumulative tightening priced in through mid-2027.” They add, “in this scenario, the USD should remain supported.”

OCBC contrasts this with the risk that “a decision to leave rates unchanged with little explanation could be interpreted as dovish and create confusion about the Fed’s reaction function,” a communication error that “risks lifting long-end inflation breakevens, a development that would be negative for the USD.”

Technical Picture: Gold Capped by Key Moving Averages

From a technical standpoint, XAU/USD remained confined within a horizontal band between $4,000 and $4,200, with spot prices oscillating near the 21-day Simple Moving Average (SMA) at $4,070. The short-term setup appears neutral, but the broader structure still leans bearish as the metal holds below the 50-day and 100-day SMAs located at $4,221 and $4,469, respectively.

The Relative Strength Index (RSI) on the daily chart printed at 47, indicating a neutral tone, while the Moving Average Convergence Divergence (MACD) indicator stayed in positive territory. This configuration points to limited downside momentum even though topside progress is constrained by overhead moving averages.

On the resistance side, the $4,200 psychological level together with the 50-day SMA at $4,221 forms the first significant ceiling. A sustained break above that zone could clear the way toward the 100-day SMA at $4,469.

Initial support appears at the 21-day SMA near $4,069, followed by the $4,000 handle. A daily close below $4,000 would open the door to a deeper pullback, while continued closes above that threshold would keep XAU/USD locked in its range, with buyers needing a firm move through $4,222 to reassert control.