Gold (XAU/USD) trades with a negative bias on Tuesday as a stronger US Dollar (USD) and rising US Treasury yields weigh on the non-yielding metal, even as geopolitical tensions surrounding the US-Iran conflict keep investors cautious.
At the time of writing, XAU/USD is trading around $5,139, easing from the daily high of $5,379 reached during the Asian session.
US Dollar climbs above 99.00 mark, Treasury yields extend gains
A stronger Greenback makes Dollar-denominated Gold more expensive for overseas buyers. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, climbs above the 99.00 mark to its highest level in over a month. Meanwhile, US Treasury yields continue to rise, with the benchmark 10-year yield gaining nearly 17 basis points (bps) over the past two days.
Despite the recent pullback in Gold prices, the downside remains limited amid a risk-averse environment. Markets are pricing in the possibility of a prolonged conflict in the Middle East after the United States and Israel carried out joint strikes on Iran over the weekend, with Tehran responding by targeting US military bases across several Gulf nations.
Late Monday, two drones struck the US Embassy in Riyadh. US President Donald Trump warned that retaliation could follow, telling NewsNation, “you’ll find out soon,” when asked about Washington’s response.
Oil-driven inflation risks temper expectations for Fed interest rate cuts
Meanwhile, the lack of strong upside momentum in Gold suggests investors remain cautious about the broader economic impact of the conflict. The geopolitical risk premium embedded in Oil prices has raised concerns about higher inflation, which could potentially affect expectations for Federal Reserve (Fed) interest rate cuts.
According to the CME FedWatch Tool, markets are fully pricing in the Fed to keep interest rates unchanged at the March and April meetings. The odds of a 25-basis-point rate cut in June have fallen to 28.1%, down from 42.8% a week ago.
Looking ahead, the US economic calendar is relatively light on Tuesday, though several Fed officials are due to speak later in the American session.
Technical analysis: XAU/USD weakens after failing to sustain gains above $5,400
The near-term outlook for Gold turns bearish after buyers failed to sustain gains above $5,400. Price action on the 4-hour chart is forming a bearish flag pattern, signaling the possibility of further downside if support levels fail to hold.
The 100-period Simple Moving Average (SMA) near $5,093 aligns closely with the lower boundary of the flag, making it an important immediate support zone. A decisive break below this level could accelerate selling pressure and expose the next downside targets at $4,850, followed by $4,650.
On the upside, bulls would need to decisively reclaim and break above the $5,400-$5,500 resistance zone to invalidate the bearish structure and revive the broader uptrend.
Momentum indicators also point to growing downside pressure. The Relative Strength Index (RSI) has dropped sharply from overbought levels above 70 to around 39, indicating fading bullish momentum.
Meanwhile, the Moving Average Convergence Divergence (MACD) indicator has turned negative, with the MACD line falling below the signal line and the histogram expanding into negative territory. At the same time, the Average True Range (ATR) is rising, highlighting increasing volatility as selling pressure builds.
