XAU/USD Gold extends fragile recovery from monthly low on soft USD; upside seems limited

• Gold attracts some dip-buyers at the start of a new week as the USD struggles to lure buyers.
• Escalating US-Iran tensions and Fed hike bets should limit USD losses, capping the commodity.
• A sustained move above the trend-channel barrier is needed to back the case for further gains.

Gold (XAU/USD) reverses a modest Asian session dip to the $3,983-$3,982 area and is now looking to build on Friday’s bounce from the monthly low. The intraday uptick is sponsored by a softer US Dollar (USD), which tends to benefit the commodity. That said, rising geopolitical tensions and expectations of higher US interest rates favor the USD bulls, warranting caution before positioning for any meaningful appreciation for the non-yielding bullion.

In the latest developments surrounding the Middle East crisis, the US said that it had ​completed a ninth straight night of strikes against Iran on Sunday after announcing the death of another American service member in Iraq. US President Donald Trump said that the latest strikes were being carried out in honor of US service members killed in recent days. Moreover, the US Central Command stated on X that the strikes are aimed at degrading Iranian military capabilities used to attack commercial vessels and civilian mariners transiting the Strait of Hormuz. In response, Iran fired ballistic missiles and one-way attack drones targeting US allies in the region, with Bahrain, Jordan, Kuwait, and Iraq reporting a new wave of attacks.

This raises the risk of a broader regional war and prompts traders to continue pricing in the geopolitical risk premium. Adding to this, the US recently resumed a naval blockade of Iranian ports and restricted an earlier oil-selling license. On the other hand, the Islamic Revolutionary Guard Corps (IRGC) is aggressively monitoring and attempting to restrict vessel traffic through the Strait of Hormuz. This, in turn, lifts crude oil prices to the highest since June 12, fueling inflation worries and bolstering bets for a Fed rate hike in 2026. Furthermore, Cleveland Fed President Beth Hammack argued on Friday that rates may need to rise to beat back persistent ‌inflation, which should support the USD and warrants caution for Gold bulls.

In the absence of any relevant market-moving US economic releases on Monday, the fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the XAU/USD pair has formed a near-term bottom. That said, comments from influential FOMC members could provide some impetus to the USD. Apart from this, the incoming geopolitical headlines should infuse some volatility in financial markets and contribute to producing short-term trading opportunities around Gold.

XAU/USD daily chart

Gold’s bearish setup warrants caution before positioning for any meaningful upside

From a technical perspective, the precious metal is holding within a downward-sloping channel and below the 200-day Simple Moving Average (SMA) near $4,495.79. This keeps the broader tone bearish despite some recent stabilisation. The XAU/USD pair currently sits just under the channel’s upper boundary around $4,056.51, suggesting rallies remain capped within the corrective structure.

Meanwhile, a modestly positive Moving Average Convergence Divergence (MACD) hints that the latest bounce carries some, but not dominant, upside momentum as the Relative Strength Index (RSI) lingers below the 50 line in mildly negative territory. Hence, a decisive break above the trend-channel hurdle is needed to open the way for a more convincing recovery toward the distant 200-day SMA at roughly $4,495.79.

On the downside, the lower boundary of the descending channel near $3,662.99 forms the next significant support, and a move back toward this zone would reinforce the prevailing bearish structure, exposing further weakness if broken.

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