Gold (XAU/USD) builds on its modest intraday bounce from the $3,983-$3982 region and climbs to the top end of its daily range heading into the European session on Friday. The US Dollar (USD) remains depressed below its highest level since May 2025 set on Thursday, amid receding Federal Reserve (Fed) rate-hike bets. This, in turn, is seen as a key factor lending some support to the commodity. Any meaningful recovery, however, still seems elusive, warranting caution for bullish traders.
The US Bureau of Economic Analysis (BEA) reported on Thursday that the Personal Consumption Expenditures (PCE) Price Index accelerated from the 3.8% YoY rate to 4.1% in May. Moreover, the core gauge, which excludes volatile food and energy prices, rose 3.4%. Investors believed that inflation likely peaked last month or is close to doing so in the face of the recent fall in Crude Oil prices to pre-war levels following an interim US-Iran peace deal. This led to a marginal uptick in bets that the Fed will hold rates steady, prompting some USD profit-taking.
Nevertheless, the CME Group’s FedWatch Tool indicates that traders are still pricing in over an 80% chance that the US central bank will raise borrowing costs at least once by the end of this year. The bets were reaffirmed by comments from Chicago Fed President Austan Goolsbee that underlying inflation pressures are still too high and trending in the wrong way. Moreover, New York Fed President John Williams pushed back his expectation of getting inflation back to the 2% target and said that inflation remains too high, though it is likely to moderate this year.
Meanwhile, reports that Iran’s Islamic Revolutionary Guard Corps (IRGC) attacked a Singapore-flagged cargo ship in the Strait of Hormuz reignited worries about the sustainability of the preliminary US-Iran peace deal. This, in turn, should help limit any meaningful losses for the USD and cap the upside for the Gold price. Moreover, the aforementioned fundamental backdrop favors bearish traders and backs the case for the emergence of fresh selling at higher levels. Nevertheless, the XAU/USD pair remains on track to register losses for the fourth consecutive week.
XAU/USD 4-hour chart
Gold might struggle to register any meaningful recovery amid a bearish setup
From a technical perspective, Thursday’s bounce from oversold conditions faltered ahead of the $4,050 horizontal support breakpoint-turned-resistance. This, along with the recent repeated failures near the 100-period Simple Moving Average (SMA) and weakness back below the $4,000 mark, validates the near-term negative outlook for the Gold. Meanwhile, the Moving Average Convergence Divergence (MACD) is turning modestly positive. However, the Relative Strength Index (RSI) near 36 stays below the neutral 50 line, hinting at lingering downside pressure rather than a decisive recovery.
On the topside, initial resistance is defined by the $4,050 region, above which, if cleared, could lift the XAU/USD pair to the $4,100 mark. Any further move up, however, might still be seen as a selling opportunity and remain capped near the 100-period SMA, at $4,231.08. Failure to challenge the said barrier should keep the near-term bias tilted to the downside.
(The technical analysis of this story was written with the help of an AI tool.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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