Gold (XAU/USD) traded near $4,150 on Friday after touching a one-week low of $4,121, as markets weighed a 60-day Memorandum of Understanding between the US and Iran alongside the Federal Reserve’s hawkish messaging. A modest pullback in the US Dollar helped limit further declines, yet bullion remained set for a third consecutive weekly loss and was almost 25% below its all-time high. Rate expectations have firmed: the CME FedWatch Tool shows a 70% probability of a hike as soon as September, while nearly half of FOMC members indicated at least one increase by year-end at June’s meeting. Higher-for-longer pricing has been reinforced by inflation running at 4.2% in May versus the Fed’s 2% target, with oil-price gains cited as a driver, and Fed Chair Kevin Warsh reaffirming the 2% goal.
Physical demand has also weakened, with Indian gold imports down nearly 70% after import duties were lifted to 15% from 6% last month. Geopolitics added to the risk tone: the White House said JD Vance delayed a Switzerland trip tied to Iran talks, while Iran’s Foreign Ministry said the MoU had already been signed digitally; Reuters also reported a ceasefire agreement between Israel and Hezbollah, citing a senior US official. Technically, XAU/USD is below the Bollinger SMA middle band at $4,357, with RSI around 35 and ADX in the mid-30s; resistance sits near $4,356 and $4,636, while support is seen at $4,150 and $4,077. Central-bank accumulation remains a background theme, with World Gold Council data showing purchases of 1,136 tonnes worth about $70 billion in 2022.
Interest Rate Policy and Inflation Risks
We believe the Federal Reserve’s commitment to higher interest rates is the main driver right now. The increasing likelihood of a September rate hike suggests further pressure on gold prices in the coming weeks. This environment is reminiscent of 2022, when the Fed’s rapid rate increases caused gold to fall over 20% from its March high to its November low.
With inflation reported at 4.2%, a full two points above the Fed’s target, we expect real yields to continue rising, making non-yielding gold less attractive. Historically, gold has struggled when real yields turn sharply positive, which was a key factor during the rate hike cycle of 2022-2023. This fundamental pressure should guide our trading strategies away from long positions.
Impact of Geopolitics and Trading Strategies
The easing of geopolitical tensions, particularly the US-Iran peace deal and the Israel-Hezbollah ceasefire, is removing the safe-haven premium that supported gold. This de-escalation means we can’t rely on crisis-driven buying to counter the negative impact from monetary policy. We are now pricing out the war risk that previously kept prices elevated above the $4,300 mark.
Given our bearish outlook, we are considering buying put options to profit from a potential drop toward the $4,077 support level mentioned in the technical analysis. Selling out-of-the-money call options or establishing bear call spreads could also be a viable strategy to collect premium while betting on limited upside. These positions allow us to define our risk in what could be a volatile market.
We must remain aware that strong central bank buying provides a long-term floor for gold prices. The World Gold Council has consistently reported robust official sector purchasing, with over 1,000 tonnes bought in both 2022 and 2023. Therefore, we will be managing our short positions actively and will be cautious about becoming overly bearish if prices approach the $4,000 psychological level.
