Gold Price Holds Near Daily Lows as Hormuz Tensions Support US Dollar, While Dovish Fed Outlook Limits Downside
Gold prices traded near their daily lows on Monday, although losses remained limited as fading expectations of further Federal Reserve interest rate hikes offset renewed safe-haven demand for the US dollar amid escalating geopolitical tensions in the Strait of Hormuz.
The precious metal recovered modestly from intraday lows but remained below the two-week high reached earlier in the session. Investors continued to weigh geopolitical risks against the prospect of a less aggressive monetary policy stance from the Federal Reserve.
Technical Outlook: Gold Remains Constructive Above Key Support
Friday's breakout above the 100-period Simple Moving Average (SMA) on the four-hour chart, combined with a move above the 23.6% Fibonacci retracement of the April-to-June decline, reinforced bullish momentum for XAU/USD.
Momentum indicators continue to favor buyers. The Relative Strength Index (RSI) remains elevated near 63, while the Moving Average Convergence Divergence (MACD) stays in positive territory, suggesting that the broader uptrend remains intact despite the current consolidation below recent highs.
On the downside, immediate support is located around the 23.6% Fibonacci retracement at $4,164, followed by the 100-period SMA near $4,147. A decisive break below this level could expose the next major structural support around $3,940.
On the upside, initial resistance stands at the 38.2% Fibonacci retracement near $4,302, followed by the 50% retracement at $4,415 and the 61.8% Fibonacci level around $4,527. A sustained breakout above these levels could pave the way toward the 78.6% Fibonacci retracement at $4,686, with the April swing high near $4,889 serving as the next major bullish target.
Geopolitical Risks and Fed Expectations Shape Gold Outlook
Persistent buying by global central banks continues to provide a strong underlying support for gold, helping limit losses after the precious metal ended a three-session winning streak.
Despite a fragile temporary agreement between the United States and Iran, geopolitical tensions surrounding the Strait of Hormuz remain elevated. Iran recently announced plans to introduce new service fees for vessels passing through the strategically important waterway, while the United States rejected the proposal. The renewed uncertainty has boosted demand for the US dollar as a safe-haven asset, creating short-term headwinds for gold.
However, expectations for additional Federal Reserve rate hikes have weakened following softer-than-expected US employment data released last Thursday. The latest labor market figures pointed to easing employment conditions, reinforcing speculation that the Fed could adopt a more patient approach toward monetary policy.
At the same time, declining crude oil prices have eased inflation concerns, reducing the likelihood that interest rates will remain elevated for an extended period. This shift has prevented the US dollar from gaining stronger upside momentum and has helped cushion gold's downside.
Central Bank Demand Continues to Support Gold Prices
Long-term demand for gold remains robust, driven largely by continued central bank purchases.
A recent World Gold Council survey revealed that central banks are increasingly viewing gold as a strategic hedge against inflation, financial instability, and geopolitical uncertainty. Nearly 90% of respondents expect global central bank gold reserves to increase over the next 12 months.
Meanwhile, the European Central Bank (ECB) reported that gold has officially surpassed US Treasuries as a share of global reserve assets, highlighting the metal's growing importance in international reserve management.
In addition, the People's Bank of China (PBOC) increased its gold holdings by 320,000 ounces in May, marking the 19th consecutive month of reserve accumulation.
Market Focus Shifts to US ISM Services PMI and Fed Speakers
Investors are now turning their attention to the upcoming US ISM Services PMI report, along with speeches from several influential Federal Open Market Committee (FOMC) officials. These events could provide fresh clues about the future direction of US monetary policy and influence demand for both the US dollar and gold.
Despite short-term volatility, the broader fundamental backdrop continues to favor higher gold prices. Ongoing central bank buying, persistent geopolitical uncertainty, and easing expectations for additional Fed tightening suggest that any intraday pullbacks are likely to attract buyers, keeping the broader bullish outlook intact.