Gold's Rally Stalls as Dollar Strength and Rate Fears Take Hold

Gold's rally stalls as a resilient US dollar and delayed Fed rate cut expectations outweigh support from geopolitical tensions. The metal holds key technical support despite a weekly decline.

Gold's impressive run has hit a pause, pressured by a potent combination of a resilient US dollar and shifting expectations for American interest rates. Although geopolitical tensions typically boost the precious metal's appeal, investors are currently favoring the world's primary reserve currency as their haven of choice.

Inflation Concerns Delay Rate Cut Expectations

The primary headwind for gold is a significant recalibration of the Federal Reserve's monetary policy timeline. Persistent inflation worries have led markets to drastically scale back their forecasts for interest rate reductions this year. Current pricing indicates expectations for just 24 basis points of cuts, a sharp decline from the 66 basis points anticipated previously. This shift is critical for gold, which, offering no yield, becomes less attractive when interest rates remain higher for longer. This repricing was reflected in a weekly decline of 2.44 percent, with the metal closing Friday's session at $5,054.90.

Middle East Tensions Fuel Dollar Demand Over Gold

The very inflation concerns delaying Fed action are being fueled by instability in the Middle East. In a recent move to alleviate energy price pressures, President Trump temporarily eased sanctions, releasing up to 128 million barrels of Russian oil. However, the risk of a broader escalation—such as a closure of the Strait of Hormuz—remains. Analysts at Bloomberg Economics suggest such an event could push oil prices toward $160 per barrel. Ironically, this uncertainty is primarily benefiting the US dollar as the most liquid safe-haven asset, which in turn makes dollar-priced gold more expensive for international buyers and dampens global demand.

Underlying Bullish Trend Remains Technically Intact

Despite the recent pullback, the broader upward trajectory for gold this year remains unbroken. The metal maintains a substantial year-to-date gain of 16.42 percent and continues to hold above its 50-day moving average, a key technical support level currently situated at $4,991.38. In the near term, market strategists view the range between $5,050 and $5,200 as a neutral trading zone. The short-term momentum is likely to stay neutral to bearish until prices can achieve a sustained breakout above the $5,130 resistance level.