Gold (XAU/USD) regained traction on Monday, reversing earlier intraday losses as escalating tensions in the Middle East and shifting interest rate expectations contributed to market volatility. At the time of writing, XAU/USD was trading around $4,576 after touching a low of $4,419 during the Asian session, marking a stabilization near recent highs [1]. The rebound was supported by a modest pullback in US Treasury yields following a surge to multi-month highs, although yields remain elevated overall. The US Dollar continues to hold firm, which has limited the upside for gold prices [1].
Markets are reassessing the Federal Reserve's monetary policy outlook. Previously, rising oil prices had prompted expectations that the Fed could adopt a hawkish stance to combat inflation, leading traders to price in possible rate hikes later this year. However, investor focus is now shifting toward concerns about the impact of high energy prices on economic growth. According to the CME FedWatch Tool, markets expect the Fed to keep interest rates steady at 3.50%-3.75% through 2026 [1]. Despite the current rebound, gold remains down nearly 15% from its March peak of $5,419 and is on track to snap a seven-month winning streak in March. The higher-for-longer interest rate outlook increases the opportunity cost of holding non-yielding assets like gold, making it less attractive to investors [1].
On the geopolitical front, the US-Israel war with Iran continues to intensify, with Iran-backed Houthi militants launching missile and drone attacks on Israel over the weekend, opening a new front in the conflict. This has raised fears of potential attacks on ships in the Red Sea and further disruptions to oil flows through the Strait of Hormuz, adding to global trade risks [1]. US President Donald Trump stated he would be willing to seize Iran’s Kharg Island, a key oil export hub, and is reportedly weighing a military operation to extract Iran’s uranium. The Pentagon is preparing for weeks of ground operations in Iran, and the US is increasing its military presence in the region by deploying thousands of troops [1].
Looking ahead, US economic data will be in focus this week, with attention on the March Manufacturing Purchasing Managers' Index (PMI) and the Nonfarm Payrolls (NFP) report. From a technical perspective, the near-term bias for XAU/USD is turning neutral to mildly bullish, as prices move back toward the 100-day Simple Moving Average (SMA) after rebounding from the 200-day SMA [1].
CONCLUSION
Gold's rebound is driven by easing US Treasury yields and heightened geopolitical tensions in the Middle East, though its upside remains limited by a strong US Dollar and expectations of steady Fed rates. The metal is still down significantly from its March peak and faces headwinds from a higher-for-longer interest rate outlook. Upcoming US economic data and ongoing regional conflict will likely influence gold's trajectory in the near term.