Gold Holds Firm Near $3,400 as Geopolitical Fears Dominate Market Sentiment.
Gold (XAUUSD) remained buoyant early Tuesday, trading with a mild positive bias near the key psychological level of $3,400. While buyers emerged during the Asian session, follow-through limited as market participants awaited the Federal Reserve’s policy decision amid intensifying Middle East tensions. The precious metal continues to draw strength from expectations of Fed rate cuts and escalating geopolitical risk, though near-term caution prevails.
Fed Rate Cut Bets Keep Dollar Bulls in Check
Gold’s early rebound from the $3,373 zone was primarily fueled by growing consensus that the Federal Reserve will begin cutting interest rates later in 2025. Markets now price in a potential rate cut by September, given signs of a cooling US economy and risks of higher consumer prices due to newly imposed Trump-era tariffs.
Although the Fed is expected to hold rates steady in the current two-day meeting starting Tuesday, investors are focused squarely on Chair Jerome Powell’s tone during the post-meeting press conference. Any hint that the central bank may pivot toward an easing cycle could trigger substantial downside pressure on the US Dollar, subsequently lifting the non-yielding yellow metal.
This backdrop has kept USD bulls on the defensive and underpins gold’s resilience despite slight upward moves in the greenback due to pre-positioning ahead of the FOMC meeting.
Middle East Escalation Drives Safe-Haven Demand
Gold’s appeal as a safe-haven asset continues to grow amid intensifying military and geopolitical unrest in the Middle East. Reports of Israeli airstrikes targeting Iran’s state-run television station and Iran’s threats to launch its most intense missile offensive yet on Israeli soil have raised the specter of a wider regional conflict.
Additionally, the Gulf of Oman witnessed three tankers catching fire, reminiscent of the 2019 tanker attacks attributed to Iran. The area, close to the critical Strait of Hormuz, handles a significant portion of the world’s oil shipments. Rising fears of potential supply chain disruptions and energy price shocks have prompted global investors to seek shelter in gold, further supporting its price.
President Trump’s decision to leave the G7 Summit early and convene a National Security Council meeting in the Situation Room signals growing seriousness in Washington about the evolving crisis, which continues to fuel gold’s safe-haven demand.
Cautious Trading Ahead of Fed Decision Caps Gold Upside
Despite bullish undercurrents, XAU/USD failed to breach the $3,400 threshold decisively. This hesitation reflects market caution as investors await clarity from the Federal Reserve. With rate policy, inflation expectations, and economic growth outlook hanging in the balance, traders are reluctant to make aggressive bets.
Even though the broader trend favors gold amid dovish expectations and geopolitical risks, short-term positioning is expected to remain muted until Wednesday’s FOMC outcome and Powell’s remarks are digested. Also in play is the US Retail Sales report, due later today, which could sway short-term sentiment around the Dollar and influence gold price dynamics.
Dollar Strength Lacks Conviction
While the US Dollar showed a modest uptick early Tuesday as part of tactical pre-Fed positioning, the momentum remains weak. The greenback’s rise is largely viewed as technical and short-term, given mounting bets for Fed rate cuts later in the year.
The potential inflationary fallout from Trump’s proposed tariffs is a key concern for the Fed. If the central bank believes such measures could raise consumer prices without improving real economic growth, it might accelerate its easing timeline. This dynamic is keeping bullish sentiment around the USD muted, which indirectly supports gold.
What to Watch: FOMC Statement, Powell’s Comments, Retail Sales
The biggest risk events for gold traders this week include:
- FOMC Policy Decision (Wednesday): Markets expect the Fed to leave rates unchanged, but any changes in dot plot projections or the tone of the statement could move gold and USD sharply.
- Fed Chair Jerome Powell’s Press Conference: His interpretation of inflation trends, geopolitical risks, and labor market softness will be key to gauging the timing and scale of possible rate cuts.
- US Retail Sales (Tuesday): Any major deviation from expectations could influence near-term expectations about US consumer resilience and influence Fed thinking.
Until these key catalysts play out, gold may consolidate between $3,370 and $3,400, with breakout potential hinging on the Fed’s clarity.
Technical Analysis: Gold Stays Bid Near Key Resistance
On the daily chart, gold is exhibiting bullish bias above the 20-day moving average, signaling continued support in the medium term. However, the psychological resistance at $3,400 remains a sticky level. A decisive daily close above this zone would open the door to the next leg higher toward:
- 🔺 $3,420 – short-term resistance from late April.
- 🔺 $3,450-$3,475 – multi-week highs and potential breakout level.
On the downside, initial support lies at:
- 🔻 $3,370-$3,373 – Asian session lows.
- 🔻 $3,345-$3,350 – last week’s breakout zone.
- 🔻 $3,320 – 50-day EMA, which aligns with the May low pivot zone.
Momentum indicators like RSI and MACD remain in neutral-to-bullish territory, suggesting room for further gains post-Fed, especially if dovish language surprises markets.
Market Sentiment: Geopolitical Risk to Remain Dominant
Beyond Fed policy, headline risk from the Middle East will be a key driver of gold prices in the days ahead. Traders should remain alert to:
- Any Israeli or Iranian retaliatory actions
- Naval disruptions or threats near oil transit chokepoints
- US involvement or military posturing
- Reactions in oil prices, which often correlate with gold in times of crisis
This geopolitical overhang could lead to spikes in gold prices, especially during Asian or early European trading when news flows are highest and liquidity is thinner.
Bottom Line
Gold remains in a holding pattern just below $3,400, supported by a softening US Dollar, dovish Fed expectations, and a dangerous geopolitical backdrop. While traders await the Fed’s policy signals, the metal is well-supported on dips and could rally strongly if Powell hints at September rate cuts or geopolitical tensions escalate further.
The coming 48 hours will likely define gold’s next major move. Until then, caution prevails, but the underlying trend remains bullish.
