Gold weakens further as inflationary concerns fuel bets for more hawkish central banks
- Gold lacks any follow-through buying as bulls seem hesitant amid mixed fundamental cues.
- Iran tensions underpin the USD, though reviving Fed rate cut bets support the commodity.
- The technical setup further warrants caution before positioning for any meaningful upside.
Gold (XAU/USD) extends its steady intraday descent further below the $4,600 mark through the early European session on Friday and reverses a part of the previous day's move higher. The commodity seems poised to register losses for the second straight week and remains within striking distance of a one-month low, around the $4,510 area set on Wednesday. Geopolitical risks due to stalled US-Iran peace talks remain supportive of elevated Crude Oil prices, fueling inflationary concerns. This, in turn, prompted hawkish shift from major central banks, including the US Federal Reserve (Fed), which is seen as a key factor undermining the non-yielding yellow metal.
US President Donald Trump rejected an Iranian proposal to open the Strait of Hormuz and lift the blockade, while postponing nuclear issues to a later stage. Trump further said that he's going to keep Iran under a naval blockade until the regime agrees to a deal that addresses US concerns about its nuclear program. Furthermore, reports suggest that the US is considering new military strikes on Iran. This fuels worries about a further escalation of tensions between the US and Iran, which underpins the USD's reserve currency status and acts as a headwind for the Gold price.
Meanwhile, the Fed held its key policy rate unchanged at 3.50%-3.75% on Wednesday, and the decision saw the highest number of dissents since 1992, with three policymakers voting against the accommodative tone in the policy statement. Adding to this, the US macro data released on Thursday indicated that inflation accelerated in March and the continued economic resilience, reaffirming bets that the US central bank could keep rates unchanged well into next year. This limits the downside for the US Dollar (USD) and backs the case for further decline in the Gold price.
The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index rose 0.7% MoM in March, and the yearly rate accelerated to 3.5% from 2.8% in February. Moreover, the core gauge that excludes volatile food and energy prices climbed 3.2% on a yearly basis, compared to the 3% increase recorded in the previous month. Separately, the advance GDP estimate showed that the US economy expanded at an annual rate of 2.0% in the first quarter of 2026, marking a notable pickup compared to the revised 0.5% growth rate recorded in the fourth quarter of 2025.
However, the chance of at least one 25-basis-points (bps) rate cut by the Fed in 2026 jumped to over 15% from a meager 1.3% probability the previous day. This holds back the USD bulls from placing aggressive bets and could act as a tailwind for Gold. The market focus now shifts to important US macro releases scheduled at the beginning of a new month, starting with the ISM Manufacturing PMI later this Friday. Apart from this, developments surrounding the Middle East crisis should influence the USD price dynamics and provide some meaningful impetus to the precious metal.
XAU/USD 1-hour chart
Gold seems vulnerable to extend weaken further and retest $4,500
The overnight strength beyond $4,600 and the 100-hour Simple Moving Average (SMA) prompted some intraday short-covering. The subsequent move up stalled ahead of $4,650, near the 38.2% Fibonacci retracement level of the downfall from the April swing high. Meanwhile, the Relative Strength Index (RSI) at 58.33 suggests firm but not overbought momentum, while the Moving Average Convergence Divergence (MACD) indicator remains marginally negative. Momentum indicators hint that bullish attempts are tentative despite price holding over the short-term trend reference.
Hence, it will be prudent to wait for a sustained break through the 38.2% Fibo. retracement at $4,651.19, before positioning for an extension of this week's goodish rebound from the $4,500 neighborhood, or a one-month low. The 50% retracement at $4,696.20 could act as the next barrier if buyers extend the advance. On the downside, immediate support is seen at the 100-hour SMA at $4,623.78, and a break below this would expose the 23.6% Fibo. level at $4,595.49, with the broader swing low at $4,505.46 coming into view on sustained weakness.
(The technical analysis of this story was written with the help of an AI tool.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.