Gold was trading near $4,630 in the European morning, close to a three-week low hit on Tuesday. A firmer US Dollar has weighed on prices, while expectations of a less hawkish Federal Reserve have limited further falls.
Diplomatic uncertainty rose after US President Donald Trump cancelled a planned visit to Pakistan by envoy Steve Witkoff and Jared Kushner. Iran sent a proposal that defers nuclear talks until the war ends and shipping disputes in the Gulf are resolved, while Trump was reported to be dissatisfied as it does not cover nuclear issues.
Dollar Strength And Fed Expectations
A standoff over the Strait of Hormuz has supported demand for the US Dollar as a reserve currency, adding pressure on gold. The Dollar’s gains have been limited by shifting rate expectations ahead of the two-day FOMC meeting starting Tuesday.
The CME Group FedWatch Tool shows traders see about a 35% chance of a US rate cut by year-end. Markets will monitor Jerome Powell’s post-meeting press conference for policy signals.
Technical levels include range support near $4,655 and resistance at the 200-period 4-hour SMA at $4,723.13. RSI is near 41, and MACD remains negative, with its line below the signal.
We remember the market dynamics of 2025, where gold was trading near $4,630 under pressure from a strong dollar tied to US-Iran tensions. At that time, the main support for gold was the hope for a less hawkish Federal Reserve. This created a tense balance between geopolitical risk and monetary policy expectations.
Outlook For Gold In 2026
Today, the landscape has shifted considerably, as the Fed’s stance is no longer ambiguous. The market is now pricing in a higher probability of tightening, not easing, to combat stubborn inflation. The CME FedWatch Tool now indicates a nearly 60% probability of a 25-basis-point rate hike by the fourth quarter of 2026, a stark contrast to the 35% chance of a cut we saw in 2025.
This policy pivot is fueled by persistent inflation, with the latest Consumer Price Index (CPI) report showing core inflation steady at 3.1%, well above the Fed’s target. A resilient labor market, with unemployment holding below 4.0%, gives the central bank further room to maintain a restrictive policy. This fundamental backdrop provides a strong tailwind for the US Dollar, which weighs heavily on gold.
While the direct US-Iran diplomatic standoff from 2025 has eased, underlying tensions in the Middle East continue to simmer, as evidenced by recent naval drills in the Strait of Hormuz. However, these risks are not providing the same safe-haven bid for gold as they did previously. Instead, the market is prioritizing the higher yields offered by the dollar.
This has pushed gold down from those 2025 highs, currently trading near the $4,150 level. Given the hawkish Fed and strong dollar, traders should view any rallies toward the $4,200 mark as selling opportunities. We see potential in buying put options with strike prices below the $4,100 support level to capitalize on further downside momentum in the coming weeks.
However, any surprise dovish signal from the Fed or a significant escalation in geopolitical events could trigger a sharp reversal. To hedge against this risk, traders might consider purchasing out-of-the-money call options above the $4,250 resistance level. This provides a cost-effective way to protect against an unexpected rally while maintaining a primary bearish stance.
