Gold prices (XAU/USD) fell by about 1.69% on Friday and could end with losses for a third straight week. At the time of writing, the XAU/USD rate was trading at $4,147, given the overall strength of the US dollar due to the Federal Reserve’s (Fed) decision to keep interest rates higher for an extended period of time.
XAU/USD falls as dollar strength, US yields rise
Risk sentiment is weighing on non-yielding metals as investors turn to yield-yielding U.S. Treasuries and the U.S. dollar, which is at a 13-month high above 101.00, as reflected by the U.S. Dollar Index (DXY).
The U.S.-Iran deal has changed trade sentiment, although it remains volatile as Israel and Hezbollah exchange attacks, before news outlets reported that both sides favor a ceasefire, adhering to the agreement signed by Washington and Tehran. Nevertheless, the Washington Post revealed that US intelligence had warned the Trump administration that Israeli President Benjamin Netanyahu might take steps to “sabotage” the agreement in the face of political pressure.
The reopening of the Strait of Hormuz eased oil supply disruptions, easing inflationary pressures. However, some major central banks have taken steps to tamp down inflation, with the European Central Bank (ECB) raising rates by 25 basis points on June 11, followed by the Bank of Japan (BoJ) on Tuesday.
The Federal Reserve could add its name to the list, as it suggested at its last meeting that nearly half of FOMC board members are considering at least one interest rate enhance in 2026.
U.S. Treasury yields are rising sharply, with 2-year T bonds, the most sensitive to market expectations of interest rate increases, rising 13 basis points after the Fed meeting, driving gold prices to six-day lows of $4,121.
Prime Terminal data showed that money markets are pricing in 18 basis points of tightening from the Fed at its September 16 meeting, meaning a 72% chance of an interest rate hike.
US investment bank Goldman Sachs lowered its gold price forecast to $4,900 per troy ounce by December, $500 lower than previously estimated.
Investors’ eyes are on next week’s U.S. economic data, mainly first-quarter 2026 gross domestic product (GDP) data, the latest estimate, as well as the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred measure of inflation.
XAU/USD Technical Outlook: Gold’s Downtrend Will Continue Below the 200-Day SMA
Gold remains on a downtrend after falling below the 200-day elementary moving average (SMA) at $4,466. Price action shows a series of lower highs and lows, although a decisive break below $4,100 would clear the way to breaking the current year-to-date low of $4,023 set on June 11.
The dynamics are still bearish, as illustrated by the relative strength index (RSI). The slope of the RSI is downward, leaving room before oversold occurs.
Therefore, if XAU/USD falls below $4,100, $4,000 will be up for grabs. Below this level, the yellow metal’s next stop will be the October 28, 2025 low of $3,886.
On the upside, gold needs to reclaim its June 17 cycle high of $4,382. After settlement, the buyer’s eyes must be on the 200-day SMA. If these levels are adopted, $4,500 will become the next area of ​​concern.
Gold FAQs
Gold has played a key role in human history as it has been widely used as a store of value and a medium of exchange. Nowadays, beyond its luster and exploit in jewelry, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation because it is not tied to any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies in turbulent times, central banks typically diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves may provide a source of confidence in the country’s solvency. According to data from the World Gold Council, central banks added 1,136 tons of gold to their reserves in 2022, worth about $70 billion. This is the highest annual purchase since registration began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US treasury bonds, which are both major reserve assets and unthreatening haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their holdings in turbulent times. Gold is also inversely correlated with risky assets. A rally in the stock market tends to weaken the price of gold, while sell-offs in riskier markets support the precious metal.
The price may change due to many factors. Geopolitical instability or fear of a deep recession can quickly cause gold prices to rise due to its safe-haven status. Gold, as a non-yielding asset, tends to rise at lower interest rates, while the higher cost of money tends to weigh on the yellow metal. Still, most of the movements depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAU/USD). A robust dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
