Gold struggles to extend gains after a brief rebound from the March 30 lows, as geopolitical risks and hawkish US monetary policy expectations bolster the US Dollar (USD). The XAU/USD pair remains under pressure, with the non-yielding bullion unable to capitalize on short-term relief rallies. This article from Taurus Partners’ brokers delivers a comprehensive exploration of the topic.
Gold Faces Renewed Selling Pressure
Gold moved higher to the $4,590 region during the Asian session, following a modest recovery from levels near $4,520, the lowest since late March. The rebound was short-lived as fresh selling interest emerged amid lingering uncertainty in the Middle East. Markets remain cautious due to stalled US-Iran negotiations, with no resolution on nuclear program disagreements and continued tension around the Strait of Hormuz.
Technical indicators highlight a near-term bearish bias. Gold trades below the 100-hour Simple Moving Average (SMA) at $4,625.58, with the Moving Average Convergence Divergence (MACD) at 3.32 showing signs of weakening momentum. The Relative Strength Index (RSI) stands at 51.7, reflecting only mild bullish pressure, suggesting that the recent rebound may be a temporary correction rather than a trend reversal.
Geopolitical Risks Underpin the USD
Geopolitical uncertainty continues to support the USD as a safe-haven asset. Reports of stalled diplomatic efforts and heightened Middle East tensions have reinforced the demand for the dollar, especially against non-yielding assets such as gold. Investors remain wary, keeping gold vulnerable to renewed declines.
The risk premium associated with geopolitical tension is currently reflected in US Dollar index (DXY) levels near 106.85, up from the prior week’s 106.15, signaling increased demand for the USD. This upward trajectory creates a headwind for XAU/USD, as bullion becomes less attractive compared to interest-bearing assets.
Fed Rate Hike Expectations Support the USD
Markets have fully priced out any US Federal Reserve (Fed) rate cuts for the remainder of 2026. Instead, traders are now anticipating at least one 25 basis point (bps) hike before year-end. The CME FedWatch Tool indicates a 39.8% probability of a rate increase at the December policy meeting, reflecting ongoing concerns about rising consumer inflation and energy price pressures.
The US 30-year Treasury yield remains elevated at 4.38%, the highest level since late 2023. Elevated yields strengthen the USD and create a disadvantage for non-yielding gold, which offers no return relative to interest-bearing instruments. In addition, short-term 2-year Treasury yields at 5.14% further reinforce the attractiveness of the dollar against safe-haven metals.
Technical Levels Indicate Bearish Bias
From a technical standpoint, gold’s inability to break above the 100-hour SMA at $4,625.58 confirms continued downside pressure. Acceptance below the psychological $4,500 level is critical for further losses, while a sustained break below the overnight swing low near $4,480 could trigger accelerated selling toward $4,450 and potentially $4,420.
On the upside, short-term resistance remains $4,590, followed by $4,625.58 at the 100-hour SMA and $4,650, marking the high from the previous rebound. MACD readings and RSI momentum suggest that any upside remains limited without a change in either the geopolitical or monetary policy backdrop.
Volatility from Middle East Developments
Market focus will remain on Middle East developments, which could generate short-term volatility spikes. Escalation in the region may temporarily support gold, creating rapid price swings.
However, given the strong USD and elevated Treasury yields, the fundamental backdrop favors bearish sentiment. Historical patterns suggest that even amid geopolitical risk, XAU/USD tends to underperform when the USD is buoyed by hawkish rate expectations.
Correlation With the US Dollar and Bonds
Gold’s performance continues to exhibit a negative correlation with both the USD and long-term US Treasury yields. The correlation coefficient between XAU/USD and DXY over the past 30 days stands at -0.62, indicating a significant inverse relationship. Similarly, the correlation with 30-year Treasury yields is -0.55, highlighting how interest rate expectations and yield curves directly influence gold’s price dynamics.
Short-term traders are also monitoring volatility indicators such as the Average True Range (ATR) on the 4-hour chart, which is currently $22.40, reflecting moderate price swings that could accelerate if geopolitical risks intensify or the Fed signals additional tightening.
Conclusion: Path of Least Resistance to the Downside
Gold’s recent rebound from $4,520 has failed to establish a sustainable uptrend. Geopolitical uncertainty, hawkish Fed expectations, and elevated US Treasury yields continue to favor USD strength.
Until there is meaningful progress in Middle East diplomacy or a significant change in Fed guidance, the path of least resistance for XAU/USD remains downward, suggesting that gold remains vulnerable to further losses in the current macroeconomic and technical environment.