Gold edges lower to near $4,350 on Fed hawkish stance, Middle East tensions
- Gold price declines to around $4,365 in Monday’s early Asian session.
- Iran issued a warning after reportedly learning that the US is planning to resume military action.
- Fed’s Schmid supported a rate hike as inflation broadens beyond 3%.
Gold price (XAU/USD) edges lower to near $4,365 during the early Asians session on Monday. The precious metal loses momentum amid escalating tensions in the Middle East and hawkish remarks from Federal Reserve (Fed) officials. Traders await the Fedspeak later this week for fresh impetus.
Reuters reported that governments across the Middle East are bracing for an escalation of violence after Iran claimed it had received intelligence that Washington was preparing for a renewed bombing campaign against the Islamic Republic. Rising tension in the Middle East could raise oil-driven inflation concerns, weighing on the Gold price.
The Fed raised interest rates by a quarter of a percentage point to the 3.75%-4.0% range last week and flagged more hikes in the coming months. Traders now see a 56.5% odds of another US rate hike when the central bankers meet next in October, according to the CME FedWatch tool. Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.
Meanwhile, hawkish comments from Fed policymakers might cap the upside for the Gold price. Kansas City Fed President Jeffrey Schmid said on Friday that he supported the rate hike, as “recent data suggest inflation trending above 3%.”
Minneapolis Fed President Neel Kashkari stated on Sunday that US inflation remains elevated across multiple economic sectors and is not solely driven by rising energy and oil prices.
Gold capped by yields and USD even as medium-term case stays intact
Strategists at OCBC note that “near term, elevated yields and a firmer USD may continue to cap gold,” with the recent Fed outcome reinforcing the headwinds from higher US rates and a strong Dollar. However, they stress that this does not “necessarily undermine the broader mediumterm case,” arguing that “with a fairly hawkish rate path already in the price, softer US data could pull yields and the dollar lower again,” potentially restoring support for the metal.
Fed’s Schmid backs hike as inflation seen stuck above 3%, reinforcing hawkish bias
Fed’s Schmid delivered a distinctly hawkish message, with an FXS Speechtracker score of 8/10, above the historical average of 7.2/10 and signaling a firmer tightening bias relative to the established baseline. The emphasis that recent data point to inflation trending above 3%, that the latest rate hike is a step toward restoring the 2% target, and that price pressures are “hot” across a broad set of goods and services underscores concern that the inflation problem is broad-based rather than confined to energy. By stressing that high inflation reflects a supply-demand imbalance even as the broader economy and labor market remain solid, the speech tilts the policy narrative toward further restraint and supports the Dollar on expectations of a higher-for-longer path.
The FXS Fed Sentiment Index rose by 0.42 points to 152.09, keeping the gauge deeply in hawkish territory and confirming that Schmid’s remarks added incremental tightening pressure to the policy outlook. With the index far above the neutral 100 mark and the FXS Speechtracker score elevated, markets are likely to price in a reduced probability of near-term cuts and a firmer Dollar bias versus the Euro and Yen.
Technical Analysis: Gold is well-supported above the 100-day SMA
In the daily chart, XAU/USD holds a constructive near-term bias as it trades above the 100-day simple moving average (SMA), keeping the broader uptrend technically supported, while price sits just under the Bollinger middle band. The Relative Strength Index (RSI) at 51.13 hovers close to neutral but slightly favors the bulls, suggesting consolidation with a mild upside tilt rather than aggressive trend exhaustion.
On the topside, initial resistance is aligned with the Bollinger middle band around $4,410, and a daily close above this area would open the way toward the upper Bollinger band near $4,615 as the next resistance zone. On the downside, immediate support emerges at the 100-day SMA at $4,320, with the lower Bollinger band near $4,200 acting as a deeper cushion if selling pressure extends, keeping the broader bullish structure intact while above these levels.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
