Gold Climbs to a Near One-Week High as Easing Iran Tensions Weigh on the Dollar Despite Hawkish Fed Expectations

Gold attracts renewed buying interest during Tuesday’s Asian session, although its upside remains limited. Persistent inflation concerns continue to reinforce expectations that the Federal Reserve will keep interest rates elevated, providing support for the US Dollar and reducing the appeal of the non-yielding precious metal. At the same time, lingering geopolitical tensions between the United States and Iran are underpinning demand for the greenback, prompting traders to remain cautious about chasing further gains in gold.

Gold (XAU/USD) extends its rebound during Tuesday’s European session, climbing to its highest level in four days around the $4,075 area as the US Dollar eases amid renewed hopes for diplomacy between Washington and Tehran.

The precious metal draws support after US Secretary of State Marco Rubio stated on Sunday that the United States remains willing to engage in negotiations with Iran despite the recent exchange of military strikes. The remarks have tempered demand for the US Dollar by encouraging optimism that the conflict could eventually be resolved through diplomatic channels.

However, Gold’s upside remains constrained as investors continue to price in the inflationary risks stemming from rising energy costs. Disruptions to oil shipments through the Strait of Hormuz, combined with Yemen’s Iran-backed Houthi movement announcing a maritime blockade targeting Saudi Arabia, have reinforced expectations of tighter global crude supplies. Higher oil prices could fuel inflation and strengthen the case for the Federal Reserve to maintain restrictive monetary policy for longer.

Market expectations continue to reflect that view. According to the CME FedWatch Tool, traders see roughly an 83% chance that the Fed will raise interest rates before the end of the year. The prospect of higher US borrowing costs supports the US Dollar and limits demand for non-yielding assets such as Gold.

Meanwhile, geopolitical tensions remain elevated despite the diplomatic signals. The United States has reportedly carried out a tenth consecutive night of strikes on Iranian targets, with the White House indicating that military operations will continue until President Donald Trump decides otherwise. Iran has responded with retaliatory attacks against US military facilities and allied infrastructure across the Gulf, keeping concerns over a broader regional conflict firmly in focus.

With geopolitical risks continuing to underpin the US Dollar’s safe-haven appeal and expectations for prolonged Fed tightening remaining intact, traders may prefer to wait for stronger confirmation before concluding that Gold has established a near-term bottom, particularly in the absence of major US economic data releases on Tuesday.

Gold H4 Chart

Gold continues to trade with a positive intraday tone after breaking above the 23.6% Fibonacci retracement of the decline from the July peak and pushing through a short-term descending trendline. This technical breakout strengthens the bullish outlook, while momentum indicators also show improving conditions. Both the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) are pointing higher, indicating that selling pressure is gradually easing.

Even so, the broader near-term outlook remains cautious as long as XAU/USD stays below the 100-period Simple Moving Average (SMA) on the 4-hour chart and several key Fibonacci resistance levels. Any continued advance is therefore likely to encounter resistance first near the 38.2% Fibonacci retracement at $4,052.78, followed by the 100-period SMA at $4,067.29 and the 50.0% retracement at $4,081.40.

If bullish momentum extends beyond those levels, the 61.8% Fibonacci retracement at $4,110.01 could provide a more formidable resistance zone. On the downside, initial support is located around $4,017, where the 23.6% Fibonacci level aligns with the recently broken trendline. A stronger support base sits near $3,960.14, the key Fibonacci anchor, where buyers may step back in should the current pullback deepen.