Gold (XAU/USD) remains on the back foot heading into the European session on Wednesday and seems vulnerable near the $4,500 psychological mark as persistent geopolitical uncertainties continue to support the safe-haven US Dollar (USD). Moreover, inflationary concerns have raised expectations for more hawkish central banks, including the US Federal Reserve (Fed), further validating the negative outlook for the yellow metal.
US forces launched self-defense strikes on southern Iran on Monday, targeting Iranian missile sites and boats attempting to place mines. Iran’s Foreign Ministry condemned the US attacks as a violation of a ceasefire that has been in place since early April. Adding to this, the Islamic Revolutionary Guard Corps (IRGC) said that Iran had the legitimate and definite right to retaliate against any US ceasefire violations. Furthermore, Iranian Supreme Leader Mojtaba Khamenei declared that regional countries would no longer act as protective zones for US military bases. This keeps geopolitical risk premium in play and underpins the Greenback’s reserve currency status, weighing on the Gold price.
Meanwhile, the US-Iran standoff, along with the effective closure of the Strait of Hormuz and the US blockade of Iranian ports, might continue to support Crude Oil prices and fuel inflation fears. This, in turn, prompts major central banks to adopt a more hawkish stance, with the Reserve Bank of Australia (RBA) hiked interest rates in May, while the European Central Bank (ECB), the Bank of Japan (BoJ), and the Reserve Bank of New Zealand (RBNZ) are expected to raise interest rates by the end of this year. Adding to this, traders are now pricing in roughly a 50% chance of a rate increase by December. This offers additional support to the USD and contributes to capping the upside for the non-yielding Gold.
Moving ahead, there isn’t any relevant market-moving economic data due for release from the US on Wednesday, leaving the USD at the mercy of comments from influential FOMC members and fresh developments surrounding the Middle East crisis. Traders, however, might refrain from placing aggressive bets and opt to wait for the release of the US Personal Consumption Expenditures (PCE) Price Index, along with the Preliminary (second estimate) US GDP report on Thursday. In the meantime, the aforementioned fundamental backdrop seems tilted firmly in favor of the XAU/USD bears, warranting some caution before positioning for any meaningful intraday recovery in the Gold price.
XAU/USD 4-hour chart
Gold seems vulnerable while below the $4,580 pivotal hurdle
From a technical perspective, the precious metal keeps a mildly bearish near-term tone following this week’s failure near the $4,580 horizontal barrier. The said area now coincides with the 100-period Exponential Moving Average (EMA) on the 4-hour chart and should now act as a key pivotal point. A sustained recovery above this hurdle is needed to ease the current bearish structure and open the way for a more durable rebound.
Meanwhile, the Relative Strength Index (RSI) stays below the neutral band, near 41, and the Moving Average Convergence Divergence (MACD) sits in negative territory. Momentum indicators, in turn, suggest persistent downside pressure despite a lack of fresh momentum extremes. Nevertheless, a clean break below the monthly swing low, around the $4,450 area, would likely invite an extension of the current corrective phase.
(The technical analysis of this story was written with the help of an AI tool.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed 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 terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
