Gold struggles below $4,700 as US-Iran tensions support USD ahead of FOMC meeting

Gold (XAU/USD) trades with a negative bias below the $4,700 mark for the second consecutive day and slides back closer to last week's swing low during the Asian session on Tuesday. The uncertainty over the second round of US-Iran peace talks assists the US Dollar (USD) in attracting some buyers, which, in turn, is seen weighing on the commodity. However, expectations for a less hawkish US Federal Reserve (Fed) could limit losses for the non-yielding bullion ahead of the key central bank event risk.

Hopes for diplomatic efforts to end the Iran war receded after US President Donald Trump canceled his special envoy, Steve Witkoff, and Jared Kushner's planned visit to Pakistan. Meanwhile, Iran gave the US a new proposal that set ‌aside discussion on the country's nuclear program until the war ends and disputes over shipping from the Gulf are resolved. Trump, however, is reportedly dissatisfied with the proposal as it does not adequately address nuclear issues. This, along with a standoff over the Strait of Hormuz, keeps geopolitical risks in play and underpins the USD's reserve currency status, weighing on Gold prices.

The upside for the USD, however, seems capped on the back of a repricing of a potential interest rate cut by the US central bank. According to the CME Group's FedWatch Tool, traders see a roughly 35% chance that the US central bank will lower borrowing costs by the end of this year. This might hold back the USD bulls from placing aggressive bets and limit the downside for Gold ahead of the crucial two-day FOMC meeting, starting this Tuesday. The focus, however, will be on the post-meeting press conference, where comments from the outgoing Fed Chair Jerome Powell will be scrutinized for cues about the future policy path.

Apart from this, fresh developments surrounding the Middle East crisis will play a key role in influencing the USD price dynamics and providing some meaningful impetus to the Gold price. The aforementioned fundamental backdrop, however, seems tilted in favor of the XAU/USD bears and backs the case for an eventual breakdown through a short-term trading range held since the early part of this month.

XAU/USD 4-hour chart

Gold bears await a breakdown through trading range support near $4,655

Against the backdrop of recent failures to find acceptance above the 200-period Simple Moving Average (SMA) on the 4-hour chart, a convincing break below the trading range support near the $4,655 area will reaffirm the negative outlook. Moreover, the Relative Strength Index (RSI) hovers just below the midline near 41, while the Moving Average Convergence Divergence (MACD) histogram is negative with the MACD line under its signal. This suggests that downside momentum is still present, even if not aggressively so.

In the meantime, initial resistance is defined by the 200-period SMA at $4,723.13, and bulls would need to reclaim and hold above this barrier to alleviate the current pressure and open the way for a more sustained rebound. Furthermore, traders are likely to watch for fresh basing patterns or a turn higher in RSI and MACD before anticipating a durable floor.

(The technical analysis of this story was written with the help of an AI tool.)