Gold (XAU/USD) maintains its bid tone through the first half of the European session on Tuesday and currently trades around the $4,530 area, just below the overnight swing high. A partial ceasefire between Hezbollah and Israel eases fears of a broader regional conflict, undermining the safe-haven US Dollar (USD) and providing a goodish lift to the bullion. However, the uncertainty around US-Iran peace talks, along with inflation fears and prospects for interest rate hikes, should limit deeper USD losses and cap the yellow metal.
US President Donald Trump announced on social media on Monday that Israel has agreed to pull back any troops that were preparing to attack Beirut and its suburbs controlled by Hezbollah. Furthermore, Trump also communicated with Iran-aligned Lebanese militant group Hezbollah through intermediaries and secured a pledge that it would not attack Israel. A limited de-escalation of the conflict fails to assist the USD to build on the previous day’s move up. However, mixed signals about US-Iran negotiations to end a three-month-old war act as a tailwind for the buck.
Iran warned that it would suspend negotiations with the US following fresh strikes and an Israeli military operation in Lebanon. However, Trump asserted that peace talks were ongoing with Iran, adding that he will have an agreement to extend the ceasefire and reopen the Strait of Hormuz over the next week. Nevertheless, investors remain on edge and opt to wait for further progress in US-Iran peace talks. In the meantime, expectations that elevated energy prices would prompt major central banks, including the US Fed, to stick to their hawkish outlook should cap the non-yielding Gold.
Market participants now look to the US economic docket – featuring the release of JOLTS Job Openings – for some impetus later during the North American session. The focus, however, will remain glued to the closely-watched US Nonfarm Payrolls (NFP) report on Friday and drive the USD demand. Apart from this, further developments surrounding the Middle East crisis should infuse volatility across the global financial markets and produce some meaningful trading opportunities around the Gold. The fundamental backdrop, meanwhile, seems tilted in favor of the XAU/USD bears.
XAU/USD 4-hour chart
Gold needs to surpass 200-SMA on H4, descending channel hurdle to negative bearish outlook
From a technical perspective, the precious metal holds within a downward-sloping parallel channel and trades beneath the 200-period Simple Moving Average (SMA) on the 4-hour chart, retaining a bearish bias. The structure suggests sellers remain in control despite a modest stabilization in momentum indicators. In fact, the Relative Strength Index (RSI) hovers near a neutral 49. That said, the Moving Average Convergence Divergence (MACD) has slipped slightly into negative territory, hinting at waning bullish attempts.
Hence, any subsequent move up is more likely to confront initial resistance around at $4,615.35, followed closely by the 200-period SMA at $4,619.67, before the channel top near $4,655.17 comes into view. A sustained break above this cluster would be needed to ease the current downside pressure. On the downside, the main support is defined by the lower boundary of the descending channel at $4,320.15, where a decisive break would reinforce the broader bearish pattern and open the door to deeper losses.
(The technical analysis of this story was written with the help of an AI tool.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
