XAU/USD Finds Support as Fed Decision and Middle East Tensions Set Stage for Gold’s Next Move

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Gold Suffers Sharp Selloff Before Rebounding

Gold endured a turbulent week as investors grappled with conflicting forces from monetary policy, inflation, and geopolitical developments.

The precious metal came under intense selling pressure after stronger-than-expected U.S. economic data boosted expectations that interest rates could remain elevated for longer. Gold prices briefly plunged toward the $4,000 level last Thursday, extending losses that had accelerated following hotter inflation data and a surprise interest rate increase from the European Central Bank.

However, buyers quickly emerged near key support levels, helping gold stage a dramatic recovery that lifted prices back above $4,200 later the same day.

The sharp reversal highlighted the ongoing battle between macroeconomic headwinds and safe-haven demand.

Strong Economic Data Strengthens Hawkish Fed Expectations

The primary catalyst behind gold’s weakness was a series of stronger-than-expected U.S. economic reports.

Inflation data showed headline CPI rising to 4.2% year-over-year in May, the highest reading in more than three years. Core inflation also edged higher to 2.9%, reinforcing concerns that price pressures remain stubbornly elevated.

Meanwhile, the U.S. labor market continued to demonstrate resilience, with the economy adding 172,000 jobs during May. The stronger employment figures reduced expectations for near-term monetary easing and increased speculation that policymakers may need to keep rates higher for longer.

The result was a stronger U.S. dollar and rising Treasury yields, both of which traditionally create headwinds for gold by increasing the opportunity cost of holding non-yielding assets.

Federal Reserve Meeting Takes Center Stage

Investor attention is now firmly focused on the upcoming Federal Reserve policy decision.

Most economists expect the Federal Open Market Committee to leave interest rates unchanged at 3.50% to 3.75%, but markets remain divided over the longer-term outlook.

Following recent inflation and employment data, money markets are now pricing in the possibility of another rate increase before year-end. At the same time, many economists expect the Fed’s updated economic projections to signal no rate cuts during 2026, a more hawkish stance than previously anticipated.

The meeting will also be closely watched because it marks the first major policy gathering under Fed Chair Kevin Warsh. Although Warsh has historically favored lower interest rates, analysts believe he is unlikely to gain sufficient support for a more dovish approach given current inflation trends.

Traders will pay particular attention to the updated dot plot and any signs that policymakers are considering removing the easing bias that has remained in recent communications.

Technical Analysis—The Support Held

Technically, the correction early in 2026 was severe. Gold broke decisively below its 20-day simple moving average, ending a streak of consistent trend support. Attention quickly shifted to the 50-day moving average near $5,000 which was also broken and in late March we saw a decline below the early February low of $4,400, and XAU bottomed at $4,023 last week.

Gold Chart Daily – Gold Rebounds Off the 100 SMA

Gold found support at the 100 SMA (red) which was broken as support last seek. Gold slipped to $4,318 on Friday, closing below the 100 SMA for the first time since 2023. However the decline stalled at the 50 SMA on the weekly chart (red).

Gold Chart Weekly – The 50 SMA Held As Support

The ability to hold above $4,000 carries psychological importance. Reclaiming such a major round-number threshold often stabilizes sentiment, especially after a period of forced liquidation. While volatility remains elevated, the ability to defend longer-term trend support suggests that structural buyers remain active.

Middle East Developments Add Another Layer of Uncertainty

While monetary policy dominated market sentiment, geopolitical developments continued to influence investor positioning.

Recent reports suggested that a framework agreement between the United States and Iran may be nearing completion. Iranian officials indicated that an interim deal could include the reopening of the Strait of Hormuz, a reduction in regional hostilities and the eventual resumption of nuclear negotiations.

However, uncertainty remains extremely high.

The situation became more complicated after Israeli forces reportedly struck Beirut, while Iranian officials vowed a response and rejected certain proposals aimed at reducing tensions. The developments raised fresh concerns that a broader regional confrontation could still emerge despite ongoing diplomatic efforts.

Gold’s Outlook Hinges on Fed and Geopolitics

The combination of stubborn inflation, resilient economic growth and heightened geopolitical uncertainty has created one of the most challenging environments for gold investors in recent months.

On one hand, higher interest rates and a stronger dollar continue to pressure bullion prices. On the other, ongoing Middle East tensions and concerns about global stability continue to generate safe-haven demand.

For now, gold’s recovery above $4,200 suggests buyers remain active at lower levels. However, the metal’s next major move will likely depend on the Federal Reserve’s guidance, future inflation readings and whether diplomatic efforts in the Middle East can prevent another escalation in regional tensions.

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst.
Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank’s local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.