Gold (XAU/USD) struggles to build on a modest intraday move up, though it manages to hold above the $4,700 mark through the first half of the European session on Monday. Iran reportedly gave the US a new proposal on reopening the Strait of Hormuz and ending the war, with nuclear negotiations postponed for a later stage. This, in turn, revives hopes for US-Iran peace talks and undermines the US Dollar’s (USD) reserve currency status, which is seen as acting as a tailwind for the commodity.
The optimism exerts some downward pressure on Crude Oil prices and eases inflationary concerns, leaving the door open for at least one 25-basis-point (bps) interest rate cut by the US Federal Reserve (Fed) in 2026. This turns out to be another factor weighing on the Greenback and benefiting the non-yielding Gold. However, a combination of factors might hold back traders from placing aggressive bullish bets on the XAU/USD pair and keep a lid on any meaningful appreciating move.
Traffic through the Strait of Hormuz remains largely blocked due to Iran’s restrictions on movement and the US naval blockade of Iranian ports. Furthermore, Israeli Prime Minister Benjamin Netanyahu said he has ordered the military to vigorously attack Hezbollah targets in Lebanon. This keeps geopolitical risks in play, which should limit losses for Crude Oil prices and the safe-haven USD, warranting some caution before positioning for any further move up for the XAU/USD pair.
Traders also seem reluctant and opt to move to the sidelines ahead of the crucial two-day FOMC policy meeting, starting on Tuesday. Investors will look for more cues about the Fed’s policy path amid still sticky inflation and resilient US economic activity. The outlook, in turn, will play a key role in driving the USD demand. Apart from this, developments surrounding the US-Iran saga should contribute to infusing volatility and providing some meaningful impetus to the XAU/USD pair.
Meanwhile, Gold premiums in India climbed to their highest in over two-and-a-half months last week due to limited supplies. Moreover, bullion traded at premiums of $9 to $12 an ounce in China, up from the previous week’s premium of $3 to $6 amid some renewed physical demand and fresh buying interest, further favoring bulls. This, in turn, backs the case for a further upside for the XAU/USD pair and suggests that intraday slides are more likely to be bought into and remain limited.
XAU/USD daily chart
Gold extends the range play as traders seem hesitant amid mixed setup
From a technical perspective, the precious metal has been consolidating in a familiar range since the beginning of this month. This comes on top of a solid rebound from the very important 200-day Simple Moving Average (SMA), tested in March, and suggests the broader uptrend remains intact, even as momentum cools. In fact, the Relative Strength Index (RSI) is hovering near a neutral 47, and the Moving Average Convergence Divergence (MACD) indicator is showing only modest positive readings. This hints at waning upside pressure rather than a decisive reversal, suggesting a period of sideways-to-soft consolidation before a clearer directional move emerges.
Meanwhile, weakness back below the $4,700 mark might continue to find decent support and attract fresh buyers near the lower boundary of the month-to-date range, around the $4,650-$4,645 region. A convincing break below might prompt aggressive technical selling and pave the way for deeper losses. On the upside, the $4,750 area could act as an immediate hurdle ahead of the $4,800 mark and the $4,860-$4,865 region. The latter represents the top end of the trading range, which, if cleared decisively, will be seen as a fresh trigger for bullish traders and set the stage for a further appreciating move beyond the $5,000 psychological mark.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
