Gold bulls seem hesitant as hawkish Fed and Middle East jitters limit USD downside

Gold prices face headwinds as the Federal Reserve's hawkish stance and Middle East tensions dampen the appeal of the US Dollar. Despite a modest Asian session rally on Friday, XAU/USD remains below its weekly high, touched the day before due to mixed signals. With US bond yields falling from multi-year peaks and oil prices recovering, the appeal of the Dollar wanes, bolstering safe-haven gold.

The Fed's decision to raise rates for the first time since 2023, coupled with expectations of additional hikes, reinforces the Dollar's upward trajectory. Meanwhile, Middle East tensions continue to support oil prices, heightening fears of energy-driven inflation and reinforcing the likelihood of further Fed tightening. Analysts at UOB Group now view the Dollar more favorably, predicting upside risks to their USD forecasts against major currencies.

The US Federal Reserve's stance and geopolitical uncertainties provide further support to the Dollar, keeping Gold prices in check. Traders will have to wait for strong buying confirmation before positioning for a sustained recovery in gold, which has been trading near the six-week low. Looking ahead, Friday's second-tier US macro data and speeches from influential Federal Open Market Committee (FOMC) members will provide insights into the USD and offer support to gold prices in the North American session.

The XAU/USD pair failed to break above the 100-day Exponential Moving Average (EMA) at $4,368, maintaining a bearish bias while staying above key Fibonacci support. Gold is currently hovering just above the 50.0% retracement level at $4,320, acting as a fragile support floor. Technical indicators, including the Relative Strength Index (RSI) at 49.52 and Moving Average Convergence Divergence (MACD) at -19.60, suggest ongoing downside pressure.

Should the pair break below the 38.2% Fibonacci retracement at $4,408, the next resistance would be the 100-day EMA at $4,368, followed by the 23.6% retracement at $4,516 and the $4,692 swing high. On the downside, immediate support is at the 50.0% retracement at $4,320, with deeper Fibonacci levels at $4,232 and $4,107, and a distant structural floor at the $3,947 zone.