Dollar Climbs as Middle East Tensions Weigh on Gold

Key Takeaways:

*The US dollar strengthened as renewed US-Iran tensions boosted safe-haven demand and lifted the Dollar Index to a one-week high.

*Rising oil prices revived inflation concerns, supporting US Treasury yields and reinforcing expectations of higher-for-longer Fed interest rates.

*Gold remained under pressure as the stronger US dollar and higher yields outweighed its traditional safe-haven appeal.

Market Summary:

The US dollar remained broadly supported while gold traded under pressure as renewed geopolitical tensions in the Middle East drove investors toward the greenback instead of traditional safe-haven assets. The latest escalation followed fresh US strikes against Iranian targets and the revocation of a license allowing Iranian oil exports after attacks on commercial tankers in the Strait of Hormuz, lifting crude oil prices and pushing the Dollar Index (DXY) to around 101.2, its highest level in nearly a week. The surge in oil prices revived inflation concerns, driving US Treasury yields higher and reinforcing expectations that the Federal Reserve may keep interest rates elevated for longer. As a result, the stronger dollar and higher yields outweighed gold’s safe-haven appeal, leaving bullion under pressure despite ongoing geopolitical uncertainty.

Meanwhile, investors remain focused on the release of the Federal Reserve’s June FOMC meeting minutes, the first under Chair Kevin Warsh, for further insight into policymakers’ views on inflation, labour market conditions and the future policy path. Although last week’s weaker-than-expected Non-Farm Payrolls and softer ADP employment data initially reduced expectations for additional Fed tightening, recent comments from New York Fed President John Williams and Governor Christopher Waller reinforced a cautious, data-dependent approach, suggesting policymakers remain vigilant over persistent inflation risks. Markets have since scaled back expectations for aggressive policy easing as higher energy prices threaten to keep inflation elevated, supporting the dollar while limiting demand for non-yielding assets such as gold.

Despite the near-term headwinds, gold continues to receive underlying support from strong official-sector demand. The People’s Bank of China reported its largest monthly increase in gold reserves in more than two-and-a-half years during June, extending its gold-buying streak to twenty consecutive months, while Hong Kong launched a new gold clearing platform and revived dollar-denominated gold futures trading to strengthen its position as a regional bullion hub. Nevertheless, near-term price action for both the US dollar and gold is expected to remain primarily driven by geopolitical developments in the Middle East, movements in oil prices and Treasury yields, and the tone of the upcoming FOMC minutes, which could determine whether the dollar extends its recent gains or whether gold regains safe-haven momentum.

Technical Analysis

GOLD, H4: 

Gold remains under pressure with price continuing to trade below a descending trendline that has capped multiple recovery attempts. Recent price action shows XAU/USD pulling back after failing to sustain gains above the 4,130 resistance level, while remaining confined within a broad consolidation range between 3,975 and 4,130. As long as the descending trendline remains intact, the broader bias favors further consolidation or downside pressure unless buyers can produce a decisive breakout.

Momentum indicators suggest bullish momentum is fading. The Relative Strength Index (RSI) has slipped back toward the neutral 50 level and is trading below its moving average, indicating weakening buying interest. Meanwhile, the MACD has completed a bearish crossover above the zero line, with the histogram turning negative, signaling that upside momentum is losing strength and increasing the risk of another pullback in the near term.

Overall, the short-term outlook remains cautiously bearish as gold continues to trade below its descending trendline despite holding above key support. The weakening RSI and bearish MACD crossover suggest upside momentum is fading, leaving price vulnerable to renewed selling pressure unless buyers can reclaim 4,130 and break above the descending trendline.

Resistance Levels: 4220.00, 4375.00

Support Levels: 4100.00, 3975.00

Dollar Index, H4: 

The U.S. Dollar Index (DXY) continues to consolidate after its strong rally from mid-June, with price holding above the key 100.10 support while struggling to establish a decisive move above 101.10. The recent series of higher lows suggests buyers remain active, but repeated failures to extend beyond the immediate resistance indicate that bullish momentum has slowed. As long as DXY remains above its ascending trendline and the 100.10 support level, the broader recovery structure remains intact.

Momentum indicators point to a cautiously constructive outlook. The Relative Strength Index (RSI) has recovered to around the 52 level and remains slightly above its moving average, suggesting modest buying momentum without entering overbought territory. Meanwhile, the MACD has completed a bullish crossover below the zero line, with the histogram gradually turning positive. Although the crossover reflects improving upside momentum, the MACD remaining below the zero line suggests the recovery is still in its early stages and requires further confirmation.Overall, the short-term outlook remains mildly bullish as DXY continues to consolidate above key support with improving momentum indicators.

Resistance Levels: 101.10, 101.85

Support Levels: 100.10, 99.50