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- Gold prices stall as Trump stalls on US involvement in the Israel-Iran conflict.
- The US Dollar firms as traders weigh safe-haven demand and interest rate expectations.
- XAU/USD pauses as investors assess US monetary and fiscal policy, as well as inflation risks.
Gold (XAU/USD) is weakening on Friday, trading around $3,355 at the time of writing, as the yellow metal extends its pullback from the weekly high near $3,452 recorded on Monday.
However, the broader macro backdrop still favours Gold in the medium term, with ongoing demand from central banks and persistent geopolitical risks offering support.
This week, the Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of England (BoE) all delivered cautious monetary policy updates, underscoring the risk that interest rates may stay elevated for longer.
Still, the near-term pullback in the Gold price is driven by US Dollar (USD) strength, firm Treasury yields, and reduced Fed rate-cut expectations, all of which have limited XAU/USD appeal for now.
Additionally, US President Trump convened a second high-level Situation Room meeting on Thursday. Trump has given officials a two-week deadline to present viable military and diplomatic strategies.
Concerns are mounting, especially if tensions disrupt the Strait of Hormuz, a key energy chokepoint.
Daily digest market movers: Gold remains on edge as the US continues to drive sentiment
- The Fed, ECB, and BoE speakers all struck cautious tones throughout the week, with Gold weighing the implications of rising yields against its safe-haven appeal.
- The Fed held rates at the 4.25%–4.50% range, maintaining projections for two rate cuts later this year, though Chair Jerome Powell emphasized a data-dependent approach, citing persistent inflation and geopolitical uncertainty.
- The ECB made it clear that further cuts will depend on progress in inflation data.
- Meanwhile, the BoE voted 6–3 to keep its Bank Rate at 4.25%, with three members backing a 25-basis-point cut.
- Governor Andrew Bailey acknowledged that rate reductions are likely, but will be “gradual and carefully considered.”
- Iran’s expanding stockpile of enriched uranium has reignited global concerns, with the US and Israel reaffirming opposition to a nuclear-armed Iran.
- The Russian Foreign Ministry warned that any US military intervention in Iran would be “extremely dangerous” and could lead to “unpredictable negative consequences.” These statements were released on Thursday by numerous News Agencies.
- On Friday, Israeli Défense Minister Israel Katz declared that Iran’s Supreme Leader Ayatollah Khamenei “cannot continue to exist,” intensifying geopolitical tensions in the region.
- Markets are digesting the implications of that meeting, which reportedly included evaluations of Iran’s fortified Fordow nuclear facility and potential pre-emptive strike options.
- Discussions are reportedly set to include Iran’s underground Fordow nuclear site, suggesting the possibility of direct US involvement.
- Roughly 20% of global Oil and Gas flows through the Strait of Hormuz. A disruption could spike Oil and energy prices. This could fuel inflation and pressure global central banks to leave interest rates higher for longer to tame rampant price pressures.
Technical analysis: Gold retreats, testing the 20-day SMA
XAU/USD price action reflects a deeper retracement of the April rally, with bulls failing to reclaim the $3,400 barrier and momentum indicators tilting lower.
The move comes as part of a broader Fibonacci retracement from the April swing low near $2,956 to the record high of $3,500.
After holding near the 23.6% Fibonacci retracement level earlier this week, Gold has now broken below that support at $3,371, exposing lower retracement levels and weakening the short-term technical outlook.
With the 20-day Simple Moving Average (SMA) being tested at $3,350, the next downside target lies at the 50-day SMA, which is near $3,318, followed closely by the 38.2% Fibonacci retracement at $3,292.
These levels represent the first major test of the rally’s durability. A break below that zone could expose horizontal support near $3,200, which supported multiple lows in April and May.
Upside levels to watch include the 23.6% Fibonacci retracement at $3,371, which now acts as resistance, and $3,400, a key psychological barrier.
Above that level, Gold faces the post-breakout high of $3,452, both of which rejected recent bullish attempts.
Only a sustained close above these levels would revive the bullish bias and reopen a path toward retesting the all-time high of $3,500.
The Relative Strength Index (RSI) indicator prints near 54 on the daily chart, gradually declining and signaling a waning of buying pressure and bullish momentum.
While not yet in oversold territory, the indicator suggests buyers are backing off, leaving Gold vulnerable to deeper retracements.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
