Gold Retreats from Two-Week High as Energy-Driven Inflation Fuels Fed Rate Hike Expectations
Gold prices eased from a two-week high on Wednesday but maintained a bullish intraday bias during the first half of the European session. The precious metal remained supported by a weaker U.S. dollar after renewed optimism that U.S.-Iran diplomatic efforts could help ease energy prices and reduce expectations for a more aggressive Federal Reserve.
Senior negotiators from both the United States and Iran signaled that diplomatic discussions remain ongoing, raising hopes for a potential de-escalation of geopolitical tensions. The prospect of lower energy prices weighed on the U.S. dollar and provided underlying support for gold.
Technical Outlook Remains Constructive Above $4,100
From a technical perspective, XAU/USD continues to trade with a positive bias after breaking above the 38.2% Fibonacci retracement of the decline from mid-June and establishing support above the $4,100 level.
Momentum indicators continue to favor the bulls. The Relative Strength Index (RSI-14) is approaching overbought territory near 69.9, while the Moving Average Convergence Divergence (MACD) remains firmly in positive territory with the signal line comfortably above zero. These indicators suggest that bullish momentum remains intact, although the rally may be becoming overstretched.
A sustained move above the 200-period Simple Moving Average (SMA) on the four-hour chart would further reinforce the bullish outlook. If buyers maintain control, gold could target the 50.0% Fibonacci retracement at $4,163.16, followed by the 61.8% retracement at $4,215.39. Additional upside resistance is located at $4,289.75, with the next major target near the cycle high of $4,384.47.
On the downside, immediate support is seen at the 200-period SMA near $4,128.26, followed by the 38.2% Fibonacci retracement at $4,110.93 and the 23.6% retracement at $4,046.31. A deeper correction could expose the late-June structural low around $3,941.85.
Middle East Tensions Keep Inflation Risks Elevated
U.S. Secretary of State Marco Rubio stated on Sunday that Washington remains open to negotiations with Iran, while Iranian Interior Minister Eskandar Momeni urged Pakistan to continue its diplomatic efforts. These developments prompted some profit-taking in the U.S. dollar after its strong rally over the past week.
However, geopolitical tensions remain elevated. The U.S. military confirmed it carried out an eleventh consecutive night of strikes against Iran, targeting aircraft hangars and drone storage facilities. President Donald Trump also warned that U.S. military operations would intensify and target any sites linked to Iran's efforts to rebuild its nuclear program.
Meanwhile, Iran continued launching attacks across the Gulf region, targeting U.S. military assets in Bahrain, Kuwait, and Jordan. Tehran also claimed responsibility for attacks on two oil tankers attempting to transit the Strait of Hormuz, while the Iran-backed Houthi movement in Yemen announced a naval blockade against Saudi Arabia.
These escalating developments have heightened concerns over a broader regional conflict and the potential disruption of global energy supplies. As a result, crude oil prices climbed to their highest level since June 12, fueling fears of energy-driven inflation that could force the Federal Reserve to maintain a hawkish monetary policy stance.
According to the CME FedWatch Tool, traders are currently pricing in an 88% probability that the Federal Reserve will deliver at least one additional interest rate hike before the end of the year. Higher interest rate expectations continue to support the U.S. dollar and could limit further gains in non-yielding assets such as gold.
Gold Recovery May Remain Limited
Analysts at OCBC believe gold is likely to remain range-bound in the near term despite recent gains.
They expect the precious metal to experience two-way trading, with any rebound likely to face strong resistance. According to the bank, a more sustainable recovery would require lower crude oil prices, easing real Treasury yields, and reduced expectations for additional Federal Reserve tightening.
Until those conditions improve, OCBC expects gold's upside potential to remain limited despite continued geopolitical uncertainty and safe-haven demand.