Gold (XAU/USD) prices edged lower during early European trading on Friday, consolidating losses that brought the metal close to a one-week low just below the $3,350 per ounce level. The retreat comes in the wake of the U.S. Federal Reserve’s recent update, which tempered expectations for interest rate cuts in 2026 and 2027. This hawkish shift has strengthened the U.S. dollar, weighing on demand for non-yielding assets like gold.
Adding to the pressure on gold, positive momentum in European equity markets has further diminished the appeal of safe-haven assets. However, escalating geopolitical tensions in the Middle East—especially the ongoing aerial conflict between Iran and Israel—may cap gold’s downside, as investors remain cautious amid heightened regional risks.
Fed’s Hawkish Tone Dampens Gold Demand
Following the Federal Reserve’s two-day meeting, officials opted to keep interest rates unchanged. The Fed’s “dot plot” forecasts two rate cuts by the end of 2025, but only one 25-basis-point reduction each in 2026 and 2027, signaling concerns over persistent inflation. These projections bolster the U.S. dollar’s strength, which typically weighs on gold prices.
Compounding uncertainty, ongoing trade tensions—including looming tariffs on the pharmaceutical sector announced by former President Trump—add volatility to the global market. These factors keep risk sentiment fragile, supporting gold’s role as a safe haven amid instability.
Middle East Geopolitical Risks Support Gold
The conflict between Iran and Israel has intensified, now entering its eighth day, with speculation about possible U.S. involvement escalating. The chair of the U.S. Senate Intelligence Committee revealed that Trump is delaying any military action, offering Iran a final chance to negotiate on its nuclear program. The threat of a broader Middle Eastern conflict continues to provide underlying support for gold prices.
Technical Outlook
Technically, gold has slipped below its 100-period simple moving average (SMA) and is testing support at the lower boundary of a short-term ascending channel. Momentum indicators show waning strength, hinting at further downside potential. If gold fails to hold support near $3,323-$3,322, it could extend losses toward the $3,300 psychological level.
On the upside, resistance lies at $3,374-$3,375, with a break above $3,400 possibly opening the door to gains toward $3,435 and the recent two-month high near $3,452. A sustained rally beyond this zone could see bulls targeting the all-time peak around $3,500, near the upper boundary of the ascending channel.
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