Gold (XAU/USD) extended its slide into a third consecutive week and lost more than 6%, its worst weekly performance since March 2020, as major central banks adopted a hawkish tone because of the upside risks to inflation posed by rising energy prices. Market participants will continue to keep a close eye on the developments surrounding the Middle East and energy prices, while scrutinizing comments from Federal Reserve (Fed) policymakers after their decision to hold rates steady.
Gold declines sharply in the big central bank week
Gold started the week in a calm manner and failed to make a decisive move in either direction on Monday and Tuesday, as investors refrained from taking large positions ahead of critical central bank decisions.
But the calm ended sharply on Wednesday once the Fed ended its meeting. In the American session on Wednesday, the US central bank announced that it left the policy rate unchanged at the range of 3.5%-3.75%, as expected.
The Summary of Economic Projections (SEP), published alongside the policy statement, showed that officials’ projections imply a 25 basis-points (bps) rate cut in 2026 and another 25 bps cut in 2027, unchanged from the December SEP. The details of the publication highlighted that while seven policymakers pencilled in no rate cuts this year, one projected a rate hike next year. Moreover, the end-2026 Personal Consumption Expenditures (PCE) inflation projection got revised higher to 2.7%, from 2.4% in December’s SEP.
In the post-meeting press conference, Fed Chair Jerome Powell explained that they expect higher energy prices to push inflation up in the near term and added that rate cuts will not follow if the inflation progress stalls. The US Dollar (USD) gathered strength in the immediate aftermath of the Fed and weighed heavily on XAU/USD, causing the pair to lose more than 3% on the day.
Although the USD Index, which gauges the USD’s valuation against a basket of six major currencies, declined sharply on Thursday following the Bank of England (BoE) and the European Central Bank (ECB) policy decisions, XAU/USD extended its weekly slide and touched its lowest level since early February near $4,500.
The BoE maintained the bank rate at 3.75%, as anticipated, but all nine members of the Monetary Policy Committee (MPC) unexpectedly voted in favor of the decision. In the policy statement, the BoE acknowledged that higher global energy prices are already feeding into petrol prices and said that the MPC is ready to act as needed to ensure the Consumer Price Index (CPI) inflation remains on track to meet the 2% target.
Meanwhile, the ECB said “the war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth,” after leaving key rates unchanged. ECB President Christine Lagarde adopted a neutral tone but noted that a prolonged war could increase energy prices for longer and erode incomes. She further added that risks to inflation are tilted to the upside in the near term and said that they could have a “temporary, targeted and tailored” response to the energy shock.
XAU/EUR and XAU/GBP pairs both lost more than 4% on Thursday, highlighting that the ECB and the BoE triggered capital outflows out of Gold to the Euro and the British Pound.
Meanwhile, crude Oil’s rally lost momentum this week but prices remained at elevated levels as the headlines coming out of the Middle East failed to hint at a de-escalation of the conflict.
Gold traders to scrutinize central bank speech, Middle East war
S&P Global will publish the Manufacturing and Services Purchasing Managers’ Index (PMI) data for March on Tuesday. Investors will pay close attention to the commentary surrounding input costs and the private sector’s expectations about the inflation outlook. In case the headline PMIs arrive in the expansion territory above 50 and the publication highlights upside risks to input cost inflation, the immediate market reaction could support the USD and force XAU/USD to stay on the back foot.
The US economic calendar will not feature any other high-tier data releases, so investors will remain focused on comments from policymakers and the fresh headlines on the Middle East crisis.
Citing four sources familiar with the matter, Axios reported that US President Donald Trump’s administration is considering plans to occupy or blockade Iran’s Kharg Island in an attempt to pressure Iran to allow safe passage of vessels through the Strait of Hormuz.
Meanwhile, Prime Minister Benjamin Netanyahu said Israel will halt its strikes on Iranian energy sites after US President Trump voiced his criticism of the Israeli attack on Iran’s Pars gas field, which is also an extension of Qatar’s North Field.
It’s difficult to say whether there will be a de-escalation of the conflict in the near term. For markets, changes in energy prices will be key. If there is a significant correction in Oil prices, the USD could come under heavy selling pressure and pave the way for a steady recovery in XAU/USD. On the other hand, Gold is likely to have a hard time shaking off the bearish pressure if Oil prices continue to rise, feeding into inflation fears and reaffirming expectations for a response by major central banks.
Throughout the week, Fed policymakers are scheduled to deliver speeches. The CME FedWatch Tool shows that markets are pricing in a less than 10% probability of a 25-basis-points (bps) rate cut by end-2026. The market positioning suggests that the USD could come under pressure if Fed officials hint that a rate cut is still likely this year. Conversely, another leg lower in XAU/USD could be triggered if policymakers suggest that they could even consider a rate hike in case inflation fears materialize due a prolonged conflict in the Middle East.
Gold technical analysis: Bearish pressure builds
Gold broke below the ascending trend line drawn from early November and dipped below the 100-day Simple Moving Average (SMA). Additionally, the Relative Strength Index (RSI) indicator fell below 40 for the first time since November 2024, highlighting a buildup in bearish pressure.
The 100-day SMA aligns as the a pivot level at $4,600, above the first support at $4,500 (Fibonacci 61.8% retracement level of the November-February uptrend). A daily close below the latter level could attract more technical sellers. In this scenario, $4,400 (static level) could be seen as an interim support level ahead of $4,240 (Fibonacci 78.6% retracement).
If XAU/USD recovers above $4,860 (Fibonacci 38.2% retracement, descending trend line) and manages to flip that level into support, $4,980-$5,000 (50-day SMA, psychological level) could act as the next resistance area ahead of $5,080-$5,100 region, where the Fibo 23.6% retracement level meets the 20-day SMA.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
