Gold has failed to gain momentum to resume its upward trend and may repeat the performance seen four years ago. Moreover, the precious metal lacks support from central banks. Let’s discuss this topic and make a trading plan for the XAU/USD.
The article covers the following subjects:
Major Takeaways
- Gold is falling amid geopolitical developments.
- Fears of rising interest rates are dragging XAU/USD quotes lower.
- The Fed may abandon its monetary expansion policy.
- A pullback from $4,520, $4,450, and $4,350 presents an opportunity to buy the precious metal.
Weekly Fundamental Forecast for Gold
History is repeating itself. During the first seven months of the armed conflict in Ukraine, gold lost about 16.5% of its value; in the less than nine weeks of the standoff between the US and Iran, it fell by 15.5%. In both cases, the decline in XAU/USD prices is driven by the same factor: fears that central banks will aggressively tighten monetary policy amid high oil prices and the resulting surge in inflation.
Gold Price and Fed and ECB Interest Rates
Source: TradingView.
The Fed’s cycle of monetary tightening in 2022–2023 was the most extensive in the past four decades. The federal funds rate soared from 0.25% to 5.5%. However, while the first 300 basis points of monetary tightening sent XAU/USD prices plummeting, the subsequent 250 basis points did little to prevent gold from surging.
The reason was active bullion buying by central banks as part of de-dollarization and diversification of gold and foreign-exchange reserves. Goldman Sachs cites this same factor as the primary bullish driver behind the precious metal’s rally toward $5,400 per ounce by the end of 2026.
Interestingly, the World Gold Council notes an increase in demand from central banks: in January–March, they purchased 244 tons, compared to 208 tons in October–December. Poland, Uzbekistan, and China were among the most active buyers. Azerbaijan, meanwhile, sold 22 tons of gold for the first time in history.
Meanwhile, gold risks losing its former advantage. In 2022, the processes of de-dollarization and reserve diversification were triggered by the West’s decision to freeze Russian assets. This served as a signal to reduce the share of dollars in reserves and increase gold’s share. The conflict in the Middle East is unlikely to escalate into a global confrontation between the West and the East. However, the closure of the Strait of Hormuz, the resulting rise in oil prices, and the acceleration of inflation are creating strong headwinds for the XAU/USD.
Gold and Crude Prices
Source: Bloomberg.
Against this backdrop, central banks are increasingly leaning toward tighter policy and more hawkish rhetoric, with the Federal Reserve at the forefront. Supported in part by productivity gains linked to artificial intelligence, the US economy has shown resilience to higher borrowing costs. As expectations for monetary easing fade, gold prices are coming under pressure.
The precious metal is now awaiting signals from Jerome Powell, reacting to the declining likelihood of policy easing in 2026. Over the past week, the probability of a federal funds rate cut has dropped from 27% to 17%. This shift has strengthened the US dollar and pushed Treasury yields higher, both of which tend to weigh on gold.
Weekly Trading Plan for XAU/USD
Jerome Powell’s hawkish rhetoric may send the XAU/USD tumbling to $4,520, $4,450, and $4,350 per ounce. However, a rebound from these levels would provide an opportunity to open long positions.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAUUSD in real time mode
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