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Gold Prices Decline Amid US Dollar Rebound
Gold (XAU/USD) is struggling to maintain the gains achieved earlier this week, experiencing a decline during the Asian session on Friday. Despite this dip, gold prices are still holding above the significant threshold of $4,600, indicating a potential for a second consecutive weekly decline. Concurrently, the US Dollar (USD) has begun to recover after suffering a drop to a one-and-a-half-week low, driven by ongoing geopolitical tensions related to stalled US-Iran peace negotiations. Moreover, the US Federal Reserve’s (Fed) hawkish stance continues to underpin the USD, adding further pressure on the non-yielding yellow metal.
Geopolitical Tensions and Economic Data
US President Donald Trump has firmly rejected an Iranian proposal aimed at opening the Strait of Hormuz and easing the blockade, indicating that nuclear discussions will be postponed. He stated intentions to maintain a naval blockade on Iran until an agreement satisfactorily addressing US nuclear concerns is reached. Additionally, reports have surfaced regarding potential new military actions against Iran, further heightening anxiety over escalating tensions, which has reinforced the USD’s status as a reserve currency and negatively impacted gold’s price.
The Fed’s recent decision to keep interest rates unchanged in the range of 3.50%-3.75% saw the largest dissent in over three decades, with three members opposing the accommodative policy stance. Economic data released on Thursday illustrated a rise in inflation, with the Personal Consumption Expenditures (PCE) Price Index ascending 0.7% month-on-month in March. Annual inflation surged to 3.5%, up from 2.8% in February. The core index, excluding volatile food and energy prices, saw a yearly rise of 3.2%, reinforcing the notion of sustained economic strength.
Despite this bullish economic outlook, the likelihood of at least one 25-basis-point rate cut by the Fed in 2026 has surged to over 15%, a sharp increase from just 1.3%. This revised expectation is curbing aggressive USD speculation and providing some support for gold prices. Market participants are now shifting their focus to important macroeconomic releases due for early next month, beginning with the ISM Manufacturing PMI due later on Friday, alongside developments in the Middle East, which are poised to impact USD dynamics and the gold market.
Technical Analysis of XAU/USD
Gold’s recent upward movement above $4,600 and the 100-hour Simple Moving Average (SMA) has incited some short-covering activity. However, this momentum faced resistance near the $4,650 mark, close to the 38.2% Fibonacci retracement level of the recent decline from the highs achieved in April. The Relative Strength Index (RSI) currently sits at 58.33, indicating solid but not overbought momentum, while the Moving Average Convergence Divergence (MACD) shows slightly negative signals. This suggests that while there may be potential for bullish movements, they remain hesitant amid current market conditions.
For traders, a sustained break above the 38.2% Fibonacci level at $4,651.19 will be crucial before considering further advancements from this week’s rebound, which followed a recent low around $4,500. Should the upward momentum continue, the 50% Fibonacci retracement at $4,696.20 may serve as the next barrier. Conversely, immediate support is present at the 100-hour SMA at $4,623.78; a break below this level could lead to further declines towards the 23.6% Fibonacci level at $4,595.49, with broader support potentially around the swing low of $4,505.46.
Summary
As global tensions continue to impact financial markets, gold prices remain under pressure while the US dollar stages a slight recovery. Although key economic indicators suggest resilience in the US economy, traders are closely monitoring geopolitical developments and next week’s critical macroeconomic data, which could sway market sentiment and price dynamics further. Investors are advised to watch for key technical levels in XAU/USD that could dictate future trends in the gold market.
