Gold Price Trims Losses but Remains Below $4,100 as Hawkish Fed Bets Limit Recovery
Gold prices recovered part of their intraday losses during the first half of the European session on Tuesday, although the precious metal remained under pressure for a second consecutive day and continued trading below the key $4,100 level. A modest pullback in the US Dollar (USD) provided temporary support for bullion, but the broader market backdrop continued to favor sellers, limiting any meaningful upside.
From a technical perspective, XAU/USD remains firmly below its 200-day Simple Moving Average (SMA) while continuing to trade within a descending parallel channel, reinforcing the prevailing bearish trend. Meanwhile, the Relative Strength Index (RSI) hovers around the 40 mark, suggesting weak momentum, while the Moving Average Convergence Divergence (MACD) histogram remains slightly positive despite easing from recent highs. These indicators point to only moderate downside momentum but fail to signal a sustained bullish reversal.
Gold Technical Outlook: Key Support and Resistance Levels
The first major support level is located at the psychologically significant $4,000 mark, followed by the year-to-date low near $3,942. A decisive break below this area could expose the lower boundary of the descending channel around $3,782.83, where bargain hunters may attempt to stabilize prices if selling pressure intensifies.
On the upside, immediate resistance is seen at the upper boundary of the channel near $4,291.51. A sustained move above this level would be required to weaken the current bearish outlook. However, the more significant resistance remains the 200-day SMA around $4,494.65, which must be reclaimed before confirming a longer-term bullish trend reversal.
Middle East Conflict Fuels Inflation Fears and Supports Hawkish Fed Expectations
Geopolitical tensions escalated over the weekend after the United States launched large-scale strikes against Iran, prompting Tehran to retaliate with missile attacks targeting U.S. military bases in the Gulf region. In addition, Iran's Islamic Revolutionary Guard Corps (IRGC) reportedly attacked another commercial vessel in the Strait of Hormuz and declared the strategic waterway closed.
The renewed conflict has intensified uncertainty across global energy markets, driving crude oil prices sharply higher and reviving concerns over energy-driven inflation. Rising oil prices have strengthened market expectations that the Federal Reserve may need to maintain higher interest rates or even tighten monetary policy further to contain inflationary pressures.
According to the CME Group FedWatch Tool, traders are currently pricing in nearly a 90% probability of another Federal Reserve interest rate hike before the end of the year. This outlook continues to support higher U.S. Treasury yields and has helped the U.S. dollar rebound from last week's multi-day lows, reducing the appeal of non-yielding assets such as gold.
However, USD bulls remain cautious ahead of fresh economic data and comments from Federal Reserve officials. Investors are particularly focused on Federal Reserve Chair Kevin Warsh's congressional testimony later this week for additional guidance on the central bank's policy outlook.
US Inflation Data Could Determine Gold's Next Move
Market participants are also closely watching the release of the U.S. Consumer Price Index (CPI) on Tuesday, followed by the Producer Price Index (PPI) on Wednesday. These key inflation reports are expected to play a crucial role in shaping expectations for future Federal Reserve policy and influencing short-term movements in both the U.S. dollar and gold prices.
A stronger-than-expected inflation reading would likely reinforce expectations for tighter monetary policy, boosting the dollar and putting additional pressure on XAU/USD. Conversely, weaker inflation figures could ease concerns over further rate hikes, providing temporary support for gold.
Despite the potential for short-term volatility, the broader fundamental backdrop remains unfavorable for bullion. As long as expectations for a hawkish Federal Reserve persist and geopolitical tensions continue to support higher energy prices, any recovery in gold is likely to face selling pressure and remain limited.