Gold prices fell sharply on Friday, retreating by more than 2.30% as XAU/USD traded at $4,551 after reaching a low of around $4,511, amid escalating fears that prolonged hostilities between the US and Iran could trigger a renewed wave of inflation and force central banks to hike interest rates [1]. The drop in gold coincided with a surge in US Treasury yields, with the 10-year note hitting a yearly high of 4.591%, up 10 basis points, and approaching the 2025 high of 4.627% [1]. The US Dollar Index (DXY) also climbed, rising 0.33% to 99.19, and reaching its highest level since April 8, supported by hawkish Federal Reserve expectations and persistent geopolitical uncertainty [1][2].
The market's risk-off sentiment was further fueled by overnight news of US President Donald Trump expressing impatience with Iran, which pushed oil prices higher and stoked speculation about a resumption of hostilities [1][2]. Recent US inflation data, with both CPI and PPI accelerating for a second consecutive month in April, erased expectations for Federal Reserve rate cuts and instead led traders to price in nearly a 50% probability of a rate hike by December, according to the CME FedWatch Tool [1][2]. Several Fed policymakers emphasized that containing inflation remains a priority, leaving open the possibility of further rate hikes if price pressures persist [1].
US economic data showed Industrial Production rose 0.7% month-over-month in April, beating forecasts of 0.3% and rebounding from a 0.3% decline in March, further supporting the case for tighter monetary policy [1]. The Greenback also found support from a positive meeting between US President Donald Trump and Chinese President Xi Jinping, where both leaders discussed trade and investment ties [2].
From a technical perspective, gold is expected to consolidate between $4,500 and $4,650 in the short term, with momentum remaining bearish as the Relative Strength Index (RSI) falls toward oversold territory [1]. If XAU/USD drops below the May 4 daily low of $4,500, further losses could follow, with support at $4,351 and the 200-day SMA at $4,322 [1]. Conversely, a recovery above $4,600 would face resistance at the 20-day SMA ($4,662), 50-day SMA ($4,729), and 100-day SMA ($4,785), with $4,800 as the next milestone [1].
Looking ahead, traders are awaiting next week's US housing and labor market data, as well as remarks from Fed officials, which could further influence market direction [1].
CONCLUSION
Gold suffered a significant decline as rising US-Iran tensions and persistent inflation fears drove US yields and the Dollar higher, erasing expectations for Fed rate cuts. With traders now pricing in a possible rate hike by year-end and technical momentum remaining bearish, gold may face continued pressure in the near term. Market participants will closely watch upcoming US economic data and Fed commentary for further direction.