Gold (XAU/USD) rebounded on Monday after falling to its lowest level since March, trading around $4,330 following an intraday low of $4,268, a price last seen on March 23 [1]. The decline was driven by renewed geopolitical tensions in the Middle East, as Iran and Israel exchanged fire for the first time since the April ceasefire, dampening hopes for a near-term peace deal [1]. US President Donald Trump commented that both sides are seeking an immediate ceasefire and that final negotiations on peace are proceeding, but also warned that the US naval blockade of Iranian ports would remain until an agreement is reached [1]. Iran's armed forces announced the end of military operations against Israel but threatened a stronger response to any future Israeli attacks on Lebanon [1].
The US Dollar Index (DXY) initially rose to 100.21, its highest since early April, before reversing gains and trading around 99.94, which provided some relief to Dollar-denominated gold prices [1]. Market participants remain concerned about the economic fallout from the conflict, as higher crude oil prices have increased inflation risks and raised the likelihood of interest rate hikes by major central banks, particularly the Federal Reserve [1].
Stronger-than-expected US Nonfarm Payrolls data released on Friday reinforced expectations that the Fed could keep borrowing costs higher for longer [1]. According to the CME FedWatch Tool, traders now assign a 38% probability of a 25-basis-point rate hike at the September meeting, up from 22% a week ago [1]. While gold is traditionally viewed as a hedge against inflation and geopolitical uncertainty, higher interest rates tend to weigh on its demand since it offers no yield [1].
Technical analysis indicates that XAU/USD remains bearish in the near term, with the Relative Strength Index near 34, approaching oversold territory, and the Average Directional Index at 28, suggesting a moderately developed downtrend [1]. Traders are expected to closely monitor upcoming US inflation data and ongoing developments in the Middle East for further direction [1].
CONCLUSION
Gold's recovery from recent lows is tempered by persistent geopolitical risks and expectations of a hawkish Federal Reserve stance. Market participants are likely to remain cautious, focusing on upcoming US inflation data and further developments in the Middle East for cues on gold's next move.