Gold declines as rising Fed hike bets and US‑Iran tensions support USD

Gold (XAU/USD) struggles to capitalize on the previous day's bounce from sub-$4,400 levels, or a one-and-a-half-week low, and attracts fresh sellers during the Asian session on Tuesday. US Federal Reserve (Fed) Chair Kevin Warsh's comments last Friday lifted market bets for an imminent interest rate hike, which, in turn, is seen as undermining the non-yielding yellow metal.

Warsh delivered a surprisingly hawkish debut speech at the Jackson Hole Symposium and signaled that the central bank may consider raising interest rates if inflation does not slow down significantly. Adding to this, rising energy prices due to escalating US-Iran tensions have revived fears of persistent inflation and increased bets on a potential interest rate hike. According to CME Group's FedWatch Tool, traders are now pricing in around a 65% chance that the Fed will raise borrowing costs at the upcoming policy meeting on September 15-16. This, along with geopolitical uncertainties, helps the safe-haven US Dollar (USD) regain positive traction following Monday's slide and further weighs on the Gold price.

In the latest developments surrounding the Middle East conflict, US forces struck two rocket launchers on Iran’s Larak Island in the Strait of Hormuz on Sunday. This was the first US strike since late July, prompting an Iranian counterattack on American air bases in Jordan. Iran also said on Monday ​it had attacked the United Arab ‌Emirates' Al Minhad Air Base with drones. Meanwhile, US President Donald Trump warned that further military action remained possible and threatened to hit Iran "hard". This keeps the geopolitical risk premium in play, which continues to lend some support to crude oil prices and the safe-haven USD.

Traders, however, might refrain from placing aggressive directional bets and opt to wait for important US macro data, scheduled at the start of a new month. A rather busy week kicks off with the release of the US ISM Manufacturing PMI and JOLTS Job Openings, due later today. The focus, however, will remain on the closely watched US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday. In the meantime, the aforementioned fundamental backdrop favors USD bulls and suggests that the path of least resistance for the Gold price is to the downside.

XAU/USD 4-hour chart

Technical Analysis

Following last week's breakdown below the 100-period Simple Moving Average (SMA), XAU/USD bears now await acceptance below the 38.2% Fibonacci retracement level of the upswing from the late July low before positioning for further losses. In the meantime, the Moving Average Convergence Divergence (MACD) indicator remains below zero, with its latest negative reading, hinting at persistent downside pressure. The Relative Strength Index (RSI) at 34.80 sits close to oversold territory, suggesting that while sellers are in control, the scope for additional aggressive losses could be increasingly constrained.

On the topside, initial resistance aligns at the 100-period SMA around $4,481, ahead of the 23.6% Fibo. retracement at $4,532, with a retest of the cycle high region near $4,697 likely requiring a sustained break above these barriers. On the downside, first support is seen at the 38.2% retracement around $4,430, followed by the 50.0% level at $4,348 and the 61.8% retracement at $4,266. A deeper slide would expose the 78.6% level at $4,149 before the broader bullish cycle floor near $3,999.