Gold (XAU/USD) managed to recover some of its losses from the psychologically important $4,000 level, or its lowest level in more than a week, supported by a modest weakening of the US dollar.
However, renewed escalation of tensions between the United States and Iran is likely to limit any further downside in the US currency. In addition, market participants are likely to await the outcome of the Federal Open Market Committee (FOMC) two-day meeting for clearer signals regarding the future path of US interest rates. The decision is expected to influence demand for the US dollar and could provide a significant catalyst for the precious metal.
In the latest developments in the Middle East, Iran’s Islamic Revolutionary Guard Corps (IRGC) launched a surprise missile attack on US forces in the region on Tuesday evening, firing several ballistic missiles. US Central Command (CENTCOM) reported that all Iranian missiles were successfully intercepted, adding that American forces remain vigilant and on heightened alert. Later, CENTCOM announced that US and Saudi forces had carried out strikes against multiple terrorist logistics and weapons facilities in eastern Iraq in response to more than 30 drone attacks over the past three days by Iran-backed groups.
Meanwhile, President Donald Trump reiterated that if diplomatic efforts fail to bring about a swift resolution to the crisis, the United States could resume decisive military action against Iran, including strikes on key Iranian infrastructure. This continues to support the geopolitical risk premium and should underpin demand for the US dollar as a safe-haven asset.
Additional support for the dollar comes from concerns over major disruptions to global energy supplies, which have triggered a sharp rise in oil prices, revived inflation risks, and strengthened expectations that the Federal Reserve may deliver at least one additional interest rate hike.
Iran-backed Houthi rebels in Yemen launched missile attacks on a Saudi oil tanker for violating a maritime shipping ban imposed on Saudi vessels. Against the backdrop of the US-Iran confrontation in the Strait of Hormuz, this contributed to a modest rebound in oil prices from the more than two-week low reached on Tuesday. Taken together, these fundamental factors continue to support a constructive short-term outlook for the US dollar, suggesting that caution remains warranted before opening positions anticipating a substantial rise in gold.
From a technical perspective, gold remains in a bearish consolidation phase. For bulls to regain upward potential, the first step is to break above the 20-day Simple Moving Average (SMA). They would then need to establish a foothold above the $4,100 psychological level, overcome the $4,150–4,200 resistance level, and break above the 50-day SMA to strengthen the bullish outlook. However, as momentum oscillators remain in negative territory, bears continue to hold the advantage. Consequently, the path of least resistance for gold remains to the downside.
