A strong US dollar and rapidly rising Treasury yields are pushing XAU/USD lower, while geopolitical tensions are supporting gold. At the same time, a prolonged conflict in the Middle East could trigger a repeat of the 2022 scenario. Let’s discuss it and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The debasement trade has turned against gold.
- The precious metal is reacting to Donald Trump’s statements.
- High interest rates act as a headwind for XAU/USD.
- A breakout below $5,050 and $5,000 could trigger gold selling.
Weekly Fundamental Forecast for Gold
Markets have a short memory, and gold is now being pushed to the sidelines. With Brent rallying, correction risks rising in the S&P 500, and the US dollar strengthening, gold’s sideways movement during the Middle East conflict makes trading the metal rather dull. Even though XAU/USD has closed in the red for two consecutive weeks, something not seen since October, the pair still struggles to choose a clear direction. Geopolitics supports gold as a safe-haven asset. However, it faces strong headwinds from the rising US dollar and Treasury yields.
Gold and US Dollar Performance
Source: Bloomberg.
In such conditions, the precious metal tends to ignore cooling labor market data and stable inflation, focusing instead on Donald Trump’s statements. His first comment about a possible end to the war in Iran pushed XAU/USD higher. His second remark that stability in the Middle East takes priority over oil prices triggered a sharp decline in gold. The longer the conflict lasts, the worse it becomes for the precious metal. At the same time, no clear end to the confrontation is in sight.
A prolonged conflict similar to the 2022 scenario now appears more likely than a short 12-day war between the US, Israel, and Iran like the one seen in the summer of 2025. The White House would prefer to exit the conflict but has yet to find a way to do so. If the current regime in Tehran remains in power, Iran could gain even greater control over the Strait of Hormuz and global oil flows than before the bombings.
A prolonged conflict could push inflation expectations higher and force central banks around the world, starting with the US, to tighten monetary policy further. As a result, the probability that the federal funds rate will remain at 3.75% until the end of the year has jumped from 4% to 45%. The Reserve Bank of Australia is preparing to raise the cash rate in the coming days, while the ECB and the Bank of Japan are also considering rate hikes. Other central banks have already abandoned plans for monetary easing.
Higher interest rates reduce the likelihood of fiat currency debasement, the key driver behind gold’s rally in 2025 and early 2026. It is therefore unsurprising that gold ETFs have recorded the largest weekly capital outflow in two years.
Gold ETF Holdings
Source: Bloomberg.
While the near-term outlook for XAU/USD looks weak, the long-term investment outlook remains positive. The 2022 scenario illustrates this clearly: gold fell nearly 20% between February and September before resuming its uptrend and hitting multiple record highs. When the global economy struggles, gold tends to shine.
Weekly Trading Plan for XAU/USD
The scenario in which high oil prices trigger stagflation or a recession suggests maintaining short positions in the precious metal opened in the $5,200–5,300 range per ounce. These positions could be increased if the price falls below $5,050 and $5,000. Traders may return to long positions in XAU/USD in a few weeks.
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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