Gold sits near mid-May highs as Iran risks support USD and cap gains

Gold (XAU/USD) maintains its bullish tone through the first half of the European session and remains close to its highest level since May 15, which it touched earlier this Monday. Receding bets for an immediate interest rate hike by the US Federal Reserve (Fed), along with softer US Treasury bond yields, support the non-yielding bullion. However, persistent geopolitical uncertainties provide a goodish lift to the safe-haven US Dollar (USD), which, in turn, caps gains for the bullion.

Tamer July US inflation data cooled expectations for near-term Fed policy tightening. Consequently, market expectations have shifted toward a policy hold at the upcoming September 15–16 FOMC meeting. Adding to this, US Treasury Secretary Scott Bessent showed readiness to intervene more aggressively as bond yields moved higher than before the buyback announcement. In fact, the US Department of the Treasury said last Wednesday that it would at least double buyback operations for long-dated government debt starting in September. Bessent reassured markets that the size of the buyback could be more than the $4 billion per issue. This keeps US bond yields depressed below a multi-year peak and might keep a lid on any meaningful recovery for the USD.

Meanwhile, markets are still pricing in over a 70% chance that the US central bank will raise borrowing costs at least once by the end of this year amid inflation risks stemming from volatile oil prices. Hence, the focus shifts to the release of the US Personal Consumption Expenditures (PCE) Price Index on Wednesday. Apart from this, Fed Chair Kevin Warsh’s speech at the Jackson Hole Symposium will be scrutinized for cues about the central bank’s future policy path, which, in turn, should provide some meaningful impetus to the USD and drive the Gold price. In the meantime, geopolitical uncertainties help the USD to move away from over a three-month low, touched last week.

US Treasury Secretary Scott Bessent is due to announce what he has called the toughest sanctions in history on Iran at a press conference on Monday. Iran’s Supreme National Security Council secretary, Mohsen Rezaei, responded by warning that the Islamic Republic would halt all oil exports through the Strait of Hormuz and anywhere else in the Persian Gulf if economic war continues. Rezaei added that any country’s participation in the US sanctions would be treated as an act of war against Iran. This, in turn, keeps the war-risk premium in play, which is seen benefiting the safe-haven Greenback and capping the upside for the Gold price, warranting caution for bulls.

XAU/USD daily chart

Technical Analysis

Friday’s close above the $4,615-$4,620 confluence – comprising the 200-day SMA and the 61.8% Fibonacci retracement level of the April-June decline – was seen as a fresh trigger for XAU/USD bulls. Adding to this, the Moving Average Convergence Divergence (MACD) indicator stays in positive territory with rising values, hinting at persistent upward momentum. However, the Relative Strength Index (RSI) at 71.77 shows overbought conditions that could limit immediate upside.

Hence, any subsequent move up could face initial resistance at the 78.6% Fibo. retracement near $4,684.43, above which Gold could aim to test the cycle high around $4,891.38. On the downside, the first meaningful support emerges from the 61.8% Fibo. retracement at $4,521.97, reinforced by the 200-day SMA at $4,516.88, with deeper structural floors seen at the 50% retracement at $4,407.86 and the 38.2% level at $4,293.75.

(The technical analysis of this story was written with the help of an AI tool. Know more.)