Gold remains depressed on firmer USD, hawkish Fed; Iran peace uncertainty curbs downside
- Gold attracts some sellers on Thursday amid the underlying bullish sentiment surrounding the USD.
- Hawkish FOMC Minutes reaffirm rate hike bets and underpin the USD amid geopolitical uncertainties.
- The downside, however, seems cushioned amid mixed signals over a potential US-Iran peace deal.
Gold (XAU/USD) sticks to modest intraday losses through the first half of the European session on Thursday, albeit it manages to hold above the lowest level since March 30, touched the previous day. Hawkish FOMC Minutes released on Wednesday reaffirmed market bets for an interest rate hike by the end of this year, which keeps the US Dollar (USD) close to a six-week high and acts as a headwind for the non-yielding bullion. The downside, however, remains cushioned as traders seem hesitant and opt to wait for further developments surrounding the Middle East crisis amid mixed signals over a potential US-Iran peace deal.
Minutes from the Federal Reserve’s (Fed) April 28–29 meeting revealed that a majority of policymakers believe that policy firming would likely become appropriate if inflation continued to run persistently above the 2% target. Officials broadly agreed that inflation risks were skewed to the upside and also acknowledged that the conflict in the Middle East could materially alter the balance of risks and complicate the appropriate policy path going forward. According to the CME Group's FedWatch Tool, traders are pricing in over a 50% chance that the US central bank will raise borrowing costs by 25 basis points (bps) in 2026.
The hawkish outlook, in turn, helps limit the overnight USD corrective slide triggered by renewed hopes for a de-escalation in the Iran conflict. In fact, US President Trump said on Wednesday that the US is in the "final stages" of talks with Iran. Adding to this, US Vice President JD Vance also struck an optimistic tone and stated that Iran wanted to make a deal. This, in turn, boosted investors' confidence, which undermined the Greenback's reserve currency status and offered some support to the Gold. The optimism, however, remains capped amid Trump's warning of more military action if Iran does not agree to a peace deal.
Iran criticized Trump's threat and warned against renewed US and Israeli attacks, saying that any such move could greatly escalate the war. Furthermore, investors remain skeptical about an elusive US-Iran peace deal amid major disagreements over Tehran's nuclear program and a standoff over the critical Strait of Hormuz. In fact, Iran launched a new “Persian Gulf Strait Authority” to control traffic through the strategic waterway. This keeps geopolitical risks in play, which contributes to limiting the downside for the USD and keeping a lid on any meaningful appreciating move in the Gold price, warranting caution for bulls.
XAU/USD 4-hour chart
Gold sticks to negative bias within a descending channel
From a technical perspective, the XAU/USD pair maintains a modest bearish bias within a downward parallel channel and remains well under the upper boundary around $4,682.12. Meanwhile, the Relative Strength Index (14) at 46.60 has recovered from oversold territory, though it still points to only neutral-to-soft momentum. However, a mildly positive turn in the Moving Average Convergence Divergence (MACD) suggests corrective upside rather than a completed bearish phase.
On the topside, initial resistance emerges at the prior channel reference around $4,632.58, with stronger supply anticipated at the upper parallel boundary near $4,682.12, which is likely to cap advances unless it decisively broken. On the downside, the immediate focus is on the $4,500 psychological mark as the nearest tactical floor. A sustained break lower would expose the lower boundary of the channel near $4,380.81, where buyers may attempt to rebuild a more durable base.
(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.