Gold draws support from weaker USD; bulls seem hesitant amid Fed hike bets

• Gold steadies following the overnight bounce from its lowest level since March 23.
• Israel and Iran halt hostilities, undermining the USD and supporting the commodity.
• US bond yields remain elevated amid hawkish Fed bets, capping the precious metal.

Gold (XAU/USD) extends its sideways consolidative price move through the Asian session on Tuesday and remains close to the lowest level since March 23, around the $4,268-$4,267 region touched the previous day. The US Dollar (USD) retreated from an over two-month high after Iran and Israel said on Monday they had ​halted attacks on each other following an appeal from US President Donald Trump. This, in turn, is seen as a key factor that acts as a tailwind for the precious metal. Traders, however, seem hesitant and opt to wait for further progress in the broader Middle East conflict.

Meanwhile, the diplomatic engagement between the US and Iran remains deadlocked amid major disagreements over Tehran’s nuclear program. In fact, Trump has said that any peace deal must ensure Iran cannot develop a nuclear weapon. Moreover, Iran is demanding formal international recognition of its sovereignty and permanent control over maritime traffic through the Strait of Hormuz, the lifting ​of international sanctions, and the release of frozen assets. Major disagreements over key issues keep geopolitical risk premium in play, which could act as a tailwind for the safe-haven buck and cap any meaningful appreciation for the Gold price.

Adding to this, shipping traffic through the strategic chokepoint remains severely constrained, keeping energy markets highly volatile. This continues to fuel inflationary concerns and expectations for more hawkish central banks, including the US Federal Reserve (Fed). According to the CME Group’s FedWatch Tool, investors are assigning more than a 70% chance that the US central bank will hike interest rates by year-end. This remains supportive of elevated US Treasury bond yields, which might hold back the USD bears from placing aggressive bets and cap the non-yielding Gold. Traders might also opt to wait for US consumer inflation figures this week.

The closely-watched US Consumer Price Index (CPI) and Producer Price Index (PPI) reports for May are scheduled for release on Wednesday and Thursday, respectively. The crucial data would assist market participants to gauge the Fed’s monetary policy ​path, which, in turn, will play a key role in driving the USD demand. Furthermore, the incoming geopolitical headlines might continue to infuse volatility and provide some impetus to the Gold price. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the XAU/USD pair is to the downside. Hence, any further move up is likely to be sold into and remain capped.

XAU/USD daily chart

Gold upside seems limited amid a bearish technical setup

From a technical perspective, last week’s breakdown and close below the 200-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders. The subsequent fall, however, showed some resilience near a descending channel support, near $4,270.16. Hence, it will be prudent to wait for a sustained break below the said area before positioning for deeper losses.

Meanwhile, the Relative Strength Index (RSI) hovers around 35, staying in weak territory without yet signaling an oversold washout. Moreover, the Moving Average Convergence Divergence (MACD) remains in negative territory with subdued momentum, hinting that sellers still have the upper hand but lack aggressive follow-through.

Hence, any recovery attempt is likely to confront stiff resistance near the 200-day SMA at $4,441.10 that bulls would need to reclaim to ease immediate downside pressure, ahead of the channel’s upper boundary around $4,571.21. The latter is a key significant barrier, which should cap the Gold price within a broader bearish structure.

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