Gold (XAU/USD) struggled to attract buyers as uncertainty surrounding the conflict between the United States (US) and Iran caused markets to continue pricing in a hawkish tilt in the Federal Reserve (Fed) policy expectations.
Gold remains capped on growing prospects of tighter Fed policy
Gold fluctuated in a relatively tight range at the beginning of the week with market participants awaiting the next development in the Middle East. Over the weekend, US President Donald Trump warned Iran that the “clock is ticking” as talks to bring the war to an end had stalled. Later in the day, Trump announced that he would “hold off” an attack on Iran scheduled for Tuesday at the request of Gulf leaders.
On Tuesday, the benchmark 10-year US Treasury bond yield climbed to its highest level since January 2025 near 4.7% as the US-Iran uncertainty allowed crude Oil prices to rise, feeding into inflation fears. In turn, Gold came under renewed bearish pressure and lost nearly 2% on the day to touch its lowest level in three weeks near $4,460.
Echoing this sentiment, BNY strategists John Velis and David Tam have abandoned their call for two Federal Reserve rate cuts this year, citing persistent disruption in the Strait of Hormuz and a labor market that has not weakened as expected.
“Our revised outlook reflects a midpoint between two scenarios: rate hikes, if inflation keeps rising while jobs hold steady; and the scenario we held until today – falling oil prices, easing inflation expectations, and a deteriorating labor market – which had pointed to cuts,” they explained.
Meanwhile, the Minutes from the Fed’s April 28-29 meeting, published on Wednesday, pointed to a noticeably hawkish tone, with many policymakers signalling they would have preferred to remove the easing bias from the policy statement altogether. Officials broadly agreed that inflation risks remain tilted to the upside, particularly against the backdrop of escalating tensions in the Middle East, rising energy prices and lingering tariff pressures.
According to the publication, the majority of participants said some additional policy firming would likely become appropriate if inflation continued to run persistently above the Fed’s 2% target.
According to the CME FedWatch Tool, markets are currently pricing in about a 60% probability of the Fed raising the policy rate by at least 25 basis points at end-2026, and see a nearly 15% chance of two rate hikes.
Although some headlines suggested late Thursday that the US and Iran were in the final stages of an agreement, Gold struggled to gather recovery momentum and remained in the lower half of its weekly range.
In the early trading hours of the Asian session on Friday, Reuters reported that a senior Iranian official clarified that no deal had been reached with the US but the gaps had been narrowed, adding that Iran’s uranium enrichment and Tehran’s control over the Strait of Hormuz are the remaining sticking points. In the meantime, US secretary of State Marco Rubio told reporters that there are “some good signs.”
Speaking again to reporters on Friday, Rubio said that they would all love to see an agreement with Iran but added that they are “not there yet.” In the early American session on Friday, Gold continued to edge lower on its way to end the week in negative territory.
Gold investors shift attention to US PCE inflation data
The US economic calendar will feature the Conference Board’s Consumer Confidence Index data for May on Tuesday, though this release is unlikely to trigger a significant market reaction. On Thursday, the US Bureau of Economic Analysis (BEA) will publish a revision to the first-quarter Gross Domestic Product (GDP) growth and release the Personal Consumption Expenditures (PCE) Price Index data, the Fed’s preferred gauge of inflation, for April.
Investors will pay close attention to the core PCE Price Index data, which strips out volatile food and energy prices, to provide a clear picture of underlying inflation trends.
If this core number rises at a faster pace than expected, it will signal that price pressures are spreading into the wider economy. In this scenario, markets are unlikely to shift away from pricing in a hawkish Fed outlook and force Gold to stay on the back foot. Conversely, a soft print could help XAU/USD rebound, but a steady bullish action could be difficult to come by unless there is a steady decline in crude Oil prices.
For Oil prices to come down in a substantial way, markets will need to see the US and Iran finally reaching a peace agreement and open the Strait of Hormuz fully. If sides continue negotiations with no permanent deal in sight, any decline in Oil prices could remain short-lived and do little to nothing to ease global inflation fears.
Gold technical analysis: Short-term outlook highlights bearish pattern
On the daily chart, Gold trades within a descending triangle and the Relative Strength Index remains near 40, pointing to a bearish continuation pattern.
On the downside, a key support level seems to have formed at $4,375-$4,380, where the 200-day Simple Moving Average and the bottom line of the descending triangle meet. If this level fails, technical sellers could show interest and open the door for an extended slide toward $4,240, the Fibonacci 78.6% retracement level of the November-February uptrend, and $4,100.
Looking north, an interim resistance level could be spotted at $4,600 (descending trend line, 20-day SMA) ahead of $4,670-$4,680 (Fibonacci 50% retracement, 50-day SMA) and $4,800 (100-day SMA).
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
