Gold (XAU/USD) rose modestly from its lowest level since 30 March, near $4,480, but struggled to extend gains. Continued US dollar strength, tied to geopolitical uncertainty and higher oil prices, kept pressure on non-yielding gold.
A drone strike caused a fire at the Barakah Nuclear Power Plant in the UAE. Saudi Arabia said it intercepted three drones launched from Iraq, while the US warned Iran to move quickly towards a deal.
Middle East Tensions And Oil Driven Inflation
Tensions also affected energy markets, with crude oil at a two-week high after a US blockade of Iranian ports and disruption around the Strait of Hormuz. Higher oil prices fed inflation concerns and supported expectations of tighter US monetary policy.
CME Group’s FedWatch Tool shows traders pricing over a 50% chance of a Fed rate rise by the end of this year, with talk also centred on a possible hike in 2026. Markets are watching the FOMC Minutes on Wednesday and global flash PMIs for further direction.
In physical markets, discounts in India hit a record last week, while Chinese premiums stayed firm. Technically, gold faces support at the 200-day SMA of $4,352.59 and resistance at the 100-day SMA of $4,790.55, with RSI near 40 and MACD negative.
The current environment strongly suggests a bearish stance on gold for the coming weeks. Rising tensions in the Middle East are fueling a flight to safety in the US Dollar, which is acting as a headwind for the precious metal. With crude oil prices pushing inflation concerns to the forefront, the market is betting on a more aggressive Federal Reserve.
Key Levels And Near Term Trading Bias
The US Dollar Index is now firmly above 107.50, a level we have not seen since the market jitters in late 2025. This strength is compounded by WTI crude futures topping $115 a barrel, directly feeding expectations for a Fed rate hike later this year. In fact, following last week’s hot Core PCE reading of 3.1%, fed funds futures are now pricing in a 65% probability of a rate increase by December.
From our perspective, any upward movement in gold towards the $4,500 psychological level should be viewed as a selling opportunity. We are looking at the 200-day moving average around $4,352 as the next significant target on the downside. The failure to reclaim the 100-day moving average last week confirms this downward momentum.
We must keep a close watch on this Wednesday’s FOMC minutes for any language that confirms the Fed’s hawkish outlook. This situation reminds us of the pattern in 2025, where initial safe-haven bids for gold quickly faded as the market priced in higher interest rates. A sustained move back above the 100-day SMA at $4,790 would be the first sign that this bearish thesis is wrong.
While we note the strong physical demand from Chinese buyers, the record discounts in India suggest broader physical support is weak. These factors are unlikely to provide a floor for prices as long as the dollar remains strong. The combination of high US Treasury yields, now holding above 4.85% on the 10-year note, and geopolitical risk favoring the dollar will likely dominate gold’s direction.
