Gold (XAU/USD) struggles to capitalize on a modest intraday bounce and trades around the $4,000 psychological mark, or nearly unchanged, heading into the European session on Monday. Rising geopolitical tensions and expectations of higher US interest rates act as a tailwind for the US Dollar (USD), which, in turn, caps the upside for the commodity and favors bearish traders.
In the latest developments surrounding the Middle East crisis, the US said that it had completed a ninth straight night of strikes against Iran on Sunday after announcing the death of another American service member in Iraq. US President Donald Trump said that the latest strikes were being carried out in honor of US service members killed in recent days. Moreover, the US Central Command stated on X that the strikes are aimed at degrading Iranian military capabilities used to attack commercial vessels and civilian mariners transiting the Strait of Hormuz. In response, Iran fired ballistic missiles and one-way attack drones targeting US allies in the region, with Bahrain, Jordan, Kuwait, and Iraq reporting a new wave of attacks.
This raises the risk of a broader regional war and prompts traders to continue pricing in the geopolitical risk premium. Adding to this, the US recently resumed a naval blockade of Iranian ports and restricted an earlier oil-selling license. On the other hand, the Islamic Revolutionary Guard Corps (IRGC) is aggressively monitoring and attempting to restrict vessel traffic through the Strait of Hormuz. This, in turn, lifts crude oil prices to the highest since June 12, fueling inflation worries and bolstering bets for a Fed rate hike in 2026. Furthermore, Cleveland Fed President Beth Hammack argued on Friday that rates may need to rise to beat back persistent inflation, which should support the USD and warrants caution for Gold bulls.
In the absence of any relevant market-moving US economic releases on Monday, the fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the XAU/USD pair has formed a near-term bottom. That said, comments from influential FOMC members could provide some impetus to the USD. Apart from this, the incoming geopolitical headlines should infuse some volatility in financial markets and contribute to producing short-term trading opportunities around Gold.
XAU/USD daily chart
Gold seems vulnerable within descending channel and below 200-day SMA
From a technical perspective, the precious metal is holding within a downward-sloping channel and below the 200-day Simple Moving Average (SMA) near $4,495.79. This keeps the broader tone bearish despite some recent stabilisation. The XAU/USD pair currently sits just under the channel’s upper boundary around $4,056.51, suggesting rallies remain capped within the corrective structure.
Meanwhile, a modestly positive Moving Average Convergence Divergence (MACD) hints that the latest bounce carries some, but not dominant, upside momentum as the Relative Strength Index (RSI) lingers below the 50 line in mildly negative territory. Hence, a decisive break above the trend-channel hurdle is needed to open the way for a more convincing recovery toward the distant 200-day SMA at roughly $4,495.79.
On the downside, the lower boundary of the descending channel near $3,662.99 forms the next significant support, and a move back toward this zone would reinforce the prevailing bearish structure, exposing further weakness if broken.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
