Gold edges higher amid subdued USD demand; hawkish Fed and US-Iran tensions to cap gains

Gold (XAU/USD) edges higher during the Asian session on Wednesday and, for now, seems to have snapped a two-day losing streak after falling to sub-$4,100 levels, or the weekly trough touched the previous day. The US Dollar (USD) struggles to build on a modest uptick as bulls turn cautious ahead of the release of the June FOMC meeting Minutes. This is seen as a key factor acting as a tailwind for the bullion. The fundamental backdrop, however, warrants some caution before confirming that the pullback from levels just above the $4,200 mark, or a two-week high set on Monday, has run its course.

The US military launched a new wave of strikes against Iran on Tuesday following reports of attacks on three oil tankers in the Strait of Hormuz, jeopardizing the already fragile ceasefire. Traders were quick to price in the geopolitical risk premium amid concerns about a further escalation of tensions, which might continue to benefit the Greenback's reserve currency status and cap the Gold price. The US also moved to withdraw a key concession that allowed Iran to sell oil on international markets, triggering a sharp rally in Crude Oil prices on Tuesday. The latest developments revive energy-driven inflationary fears and reaffirm the US Federal Reserve's (Fed) "higher for longer" policy stance.

According to the CME Group's FedWatch Tool, traders are currently pricing in over an 80% chance that the US central bank will deliver at least one 25 basis points (bps) rate hike by the end of this year. Adding to this, expectations of a more hawkish tone in the Fed Minutes push US Treasury bond yields higher. In fact, the yield on the benchmark 10-year US government bond rose to 4.567%, and the policy-sensitive two-year Treasury yield climbed to 4.189% on Wednesday. This, in turn, favors the USD bulls and should contribute to keeping a lid on the non-yielding Gold. Hence, it will be prudent to wait for some follow-through buying before placing fresh bullish bets on the XAU/USD pair.

XAU/USD daily chart

Gold is likely to attract fresh sellers at higher levels amid bearish technical setup

From a technical perspective, the precious metal remains entrenched inside a downward-sloping channel and retains a bearish near-term bias below the 200-day Simple Moving Average (SMA). Meanwhile, the Moving Average Convergence Divergence (MACD) has turned positive, hinting at a short-term recovery attempt. However, the Relative Strength Index (RSI) at 44.33 stays below the midline, reinforcing a still-cautious tone rather than a sustained bullish reversal.

This, in turn, suggests that rallies are likely to face stiff resistance and remain capped by overhead supply near the channel’s upper boundary at $4,164.35, despite improving momentum. A convincing breakout through the said barrier and a subsequent move beyond the 200-day SMA at $4,491.30, which marks a more significant barrier, would be needed to ease the broader bearish pressure.

On the downside, the first meaningful structural support aligns with the channel’s lower boundary around $3,713.85. Buyers may attempt to defend the broader trend floor if the current rebound fails and XAU/USD resumes its slide within the bearish channel.