The price of gold is slightly lower on the day as the dollar gains amid doubts whether the United States and Iran will be able to reach an agreement to end the conflict and investors are pricing in a Federal Reserve (Fed) interest rate hike by the end of the year. At the time of writing, the XAU/USD rate is at $4,518, down 0.50%.
XAU/USD falls as US dollar strength puts pressure on bullion demand
The dollar is exerting influence on the yellow metal, helped by hawkish comments from a Fed official. The US dollar index (DXY), which tracks the dollar against a basket of six currencies, rose 0.07% to 99.26.
Oil prices continued to rise as doubts about a possible deal with Iran grew. Mixed messages regarding Iranian uranium, the “project” sent by Washington to Tehran, and Al-Arabiya citing sources that a deal is not within reach have spread despite the Pakistan Army chief’s visit to Iran.
Fed Governor Christopher Waller indicated that he does not currently expect to support a change in interest rates, but prefers to eliminate the permissive stance from the statement. He also mentioned that if inflation expectations deviate from the target, he “will not hesitate” to support an raise. He now describes talk of interest rate cuts as “crazy.”
The recently sworn-in recent Fed chairman, Kevin Warsh, said he will lead a “reform-oriented” central bank, that he is not naive about the challenges it faces and that he will “learn from past mistakes and successes.” During Warsh’s swearing-in, US President Donald Trump did not call for interest rate cuts, emphasizing that he wanted him to remain “fully independent” in his recent role.
Prime Terminal data shows that money markets have received a warning and the likelihood of a US interest rate raise by December 2026 has increased.
U.S. consumer sentiment deteriorated sharply, with the University of Michigan’s index falling from May’s flash reading of 48.2 to 44.8 – a record low and below the 48.2 expected by economists. The survey also showed growing concern about the cost of living, with survey director Joanne Hsu saying high prices were putting a strain on household finances (up from 50% last month).
Inflation expectations increased from 4.7% to 4.8% over the next twelve months and from 3.5% to 3.9% over the next five years.
Next week’s U.S. economic report will include speeches by Fed officials, housing data, gross domestic product (GDP) data for the first quarter of 2026, and the Fed’s preferred measure of inflation, the Price Index for Basic Personal Consumption Expenditures (PCE).
XAU/USD Technical Outlook: Gold will consolidate in anticipation of $4,550
During the week, the price of gold appears to have bottomed out around $4,450. Since then, the XAU/USD pair has seen consecutive trading days of higher lows, with buyers anticipating a clear break from the May 19 intraday high of $4,589, extending the upward move towards the $4,600 milestone.
The momentum remains bearish, as indicated by the Relative Strength Index (RSI) trending lower, deep into oversold territory.
To continue the bearish run, Gold needs to raise $4,450, which could pave the way for a $4,400 challenge. Below that is the 200-day uncomplicated moving average (SMA) at $4,352, seen by buyers as the last line of defense before the untestable metal turns bearish.
On the other hand, if XAU/USD breaks above the $4,550 mark, expect a test of the 20-day SMA at $4,609. The next area of ​​interest is the 50-day SMA at $4,667.
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 safe and sound 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. Despite this, most of the movements depend on the behavior of the US dollar (USD) when the asset is priced in dollars (XAU/USD). A mighty dollar tends to keep the gold price in check, while a weaker dollar will likely cause gold prices to rise.
