XAU/USD Hovers Below $3,400 as Conflict Risks and Fed Policy Lock Gold in Tactical Standoff
Gold (XAU/USD) remains confined beneath the $3,400 threshold during Thursday’s European session, consolidating within a narrow range despite the rising heat of geopolitical risk and a hawkish central bank narrative. As of writing, spot gold sits at $3,365.79, down 0.1%, while futures contracts have declined 0.7% to $3,382.80. This sideways grind is now defined by a clear technical bottleneck and macro headwinds combining to cap upside potential for the world’s most prominent safe-haven commodity.
Fed Holds Steady, But Long-Term Hawkish Shift Raises Ceiling on Real Rates
The Federal Reserve left its benchmark interest rate unchanged at 4.25%–4.50% on Wednesday, marking a fourth consecutive pause. But policymakers surprised markets by adjusting their longer-term forecasts, now seeing inflation persisting at 3.6% in 2026 and 3.4% in 2027. These projections eliminate expectations for an aggressive easing cycle, with only two 25bp rate cuts anticipated through 2025—down from four in previous forecasts.
Chair Jerome Powell emphasized the Fed’s caution, stating the central bank remains “prepared to adjust policy” but warned of “meaningful” inflation risks stemming from Trump’s escalating tariff strategy, a move that injects persistent price pressures into the macro outlook. A stronger dollar followed, reinforcing downward pressure on gold, which yields no interest and underperforms in environments of rising real yields.
Gold Retains Safe-Haven Bid Amid Explosive Middle East Flashpoint
Despite monetary tightening, gold’s downside remains cushioned by the expanding Israel–Iran conflict. Bloomberg confirmed U.S. officials are preparing for a possible strike on Iran, with Trump fueling uncertainty: “I may do it. I may not.” These words echo amid images of Iranian civilians fleeing airstrikes and U.S. military repositioning assets across the Gulf.
The conflict entered its seventh day Thursday, with reported Iranian missile strikes on Israeli hospitals and retaliatory bombings on nuclear facilities. The escalation ensures that gold demand remains anchored by geopolitical risk, with traders wary of broader spillover into energy markets and currency flows. Gold has traditionally surged in such environments, but the opposing force of Fed-driven dollar strength neutralizes full momentum.
Key Technical Structures Define XAU/USD Range Ahead of Breakout
Technically, XAU/USD trades within an Ascending Triangle, with horizontal resistance marked at $3,500 and rising trendline support originating from the April 7 low at $2,957. The 20-day EMA continues to act as dynamic support near $3,350, while the 50-day SMA sits tighter at $3,314.40, placing the $3,310.48 region as a tactical floor. A breakdown here opens downside targets at $3,280 and $3,228.38. Momentum signals are deteriorating: the MACD histogram has turned negative, both lines are descending, and no reversal pattern has emerged on the daily chart.
RSI also reflects a lack of bullish commitment, stalling around 47, well below the bullish breakout threshold of 60. Price action over the past week has been marked by lower highs and smaller candle bodies, signaling buyer exhaustion. Attempts to retest $3,430 and $3,451.53 have failed, and unless bulls recover $3,385, the 50-EMA barrier will continue to reject rallies.
Inflation Uncertainty, Dollar Strength, and Central Bank Flow Complicate the Path Higher
The interplay between inflation anxiety and interest rate expectations complicates the gold trajectory. Gold benefits from inflation but suffers under high real rates. With the Fed maintaining quantitative tightening and lowering the probability of further rate cuts, upside momentum is starved.
Meanwhile, the U.S. Dollar Index (DXY) has rebounded sharply from oversold conditions, making gold more expensive for non-dollar buyers and further dampening demand. Commodity strategists note that the dollar’s surge, combined with the Fed’s revised inflation view, has made gold’s rally much harder to sustain above $3,400 unless global data begins tilting dovish.
ETF Flows Remain Flat as Traders Look for Confirmation
Unlike the Bitcoin market, which saw $389M in ETF inflows this week, gold ETF flow has remained stagnant. SPDR Gold Shares (GLD), the largest bullion-backed ETF, has seen minimal changes in net assets over the past five sessions. The lack of institutional accumulation at current levels suggests markets are still awaiting macro confirmation before resuming longer-term accumulation strategies.
Traders remain cautious as real yields edge higher and liquidity tightens. Central banks remain net buyers of gold, but at the tactical level, the speculative crowd is stepping back, evidenced by a drop in open interest across COMEX gold contracts this week. The options market also reflects reduced call volume, suggesting hedging has overtaken outright bullish bets.
Short-Term Trade Map: Inflection at $3,362 Defines Momentum Playbook
Near-term, $3,362 is the price to watch. A daily close below that zone puts the spotlight on $3,344 and $3,319 as successive targets. Below $3,310, bears could open a move toward the May 15 low at $3,121. On the upside, bulls must reclaim $3,411 to break into the upper structure of the Ascending Triangle. A successful retest of $3,450–$3,500 would re-engage trend-following inflows.
Tim Waterer of KCM Trade put it bluntly: “If the U.S. gets involved directly in Iran, the stakes rise fast—and so will gold. But Powell’s rhetoric and the dollar’s strength have created a high fence for bulls to leap over.”
