Gold Retreats on Stronger Dollar, Fed Outlook

Key Moments

Fundamentals: Dollar Strength and Geopolitics Challenge Gold

Gold (XAU/USD) continues to slide after being rejected near the $4,100 level, extending its move away from the one-week high reached the day before. The recovery in the US Dollar following its post-FOMC setback on Wednesday is a primary headwind for the metal, curbing demand for non-yielding assets.

Concerns about inflation linked to intensifying US-Iran tensions are helping keep expectations for additional US Federal Reserve rate hikes firmly in play. This environment is diverting flows toward the USD and away from gold, reinforcing the bearish tone around the metal.

Fed Decision: On Hold, but Hike Risks Remain

As anticipated, the Federal Reserve left interest rates unchanged at the conclusion of its two-day policy meeting on Wednesday. While the Fed did not adopt a more forceful hawkish stance, this initially dragged the USD lower and allowed gold to briefly advance to a weekly peak.

However, the decision featured three dissents in favor of a 25-basis-point increase, underscoring ongoing divisions within the Committee. Market participants continue to assign a higher probability that the Fed will raise borrowing costs at least once before year-end, reflecting fast-changing inflation dynamics tied to volatile oil prices.

According to TD Securities, “precious metals have remained weak in the face of hawkish market pricing for the Fed,” and renewed strength in energy markets is expected to “continue to feed into this narrative.” The firm highlights that the combination of firmer policy expectations and rising energy prices is keeping gold and other precious metals under pressure, reinforcing the current downside bias.

Geopolitics and Energy: US-Iran Conflict Fuels Inflation Fears

Crude oil price action is being driven largely by the escalating conflict between the US and Iran, particularly around key maritime routes – the Strait of Hormuz and the Bab el-Mandeb. The US has carried out strikes against Iran following surprise Iranian missile attacks on American forces stationed in the Middle East on Tuesday.

Additionally, joint US-Saudi operations targeting Iran-aligned terrorists in Iraq are heightening worries about a broader regional escalation. Reports also indicate that Yemen’s Iran-backed Houthis are considering imposing fees on commercial vessels transiting the southern Red Sea.

These developments layer onto the ongoing US-Iran standoff over the Strait of Hormuz, amplifying concerns about potential disruptions to global energy flows and contributing to a sharp overnight rise in crude prices. The resulting fear of energy-driven inflation is bolstering the case for tighter Fed policy, indirectly pressuring gold via a stronger USD and higher rate expectations.

Upcoming Data: Growth and Inflation in Focus

Market attention now turns to key US macroeconomic releases, including the Advance Q2 GDP report and the Personal Consumption Expenditures (PCE) Price Index. Investors will scrutinize these data points for guidance on the Fed’s next moves, with any surprise on growth or inflation likely to influence the USD and, by extension, the trajectory of XAU/USD.

Technical Picture: Bias Still Tilted Lower

The recent, relatively narrow trading range in gold over the past month continues to resemble a consolidation phase within a broader bearish structure, particularly in light of the break below the 200-day Simple Moving Average (SMA). This setup suggests that the dominant directional bias for XAU/USD remains to the downside, despite the recent rebound from levels below $4,000.

The Moving Average Convergence Divergence (MACD) indicator has turned positive, pointing to some improvement in short-term momentum. However, the Relative Strength Index (RSI) is hovering near 48, still beneath the neutral 50 mark, which signals a contained upside rather than a clear bullish reversal.

On the upside, any advance is likely to encounter resistance toward the top of the recent trading band, ahead of the $4,200 level. A decisive break above that region would be needed to clear the way for a move toward the 200-day SMA, currently at $4,490.80. This moving average remains the key technical barrier that bulls must overcome to re-establish a durable uptrend.

On the downside, initial support is located at the recent swing lows in the $3,976–$4,000 zone, where dip-buying previously emerged. As long as XAU/USD trades beneath the 200-day SMA, any bounce is likely to be viewed as corrective within an overall consolidative-to-bearish pattern.

Key Technical Reference Levels for XAU/USD