Gold (XAU/USD) is edging lower on Friday, heading for its second consecutive weekly decline as market sentiment is dominated by expectations that interest rates will remain higher for longer due to persistent inflation concerns driven by elevated oil prices [1]. At the time of writing, XAU/USD is trading around $4,577, just above the one-month low of $4,510 reached earlier this week [1]. The surge in energy costs, attributed to the ongoing US-Iran war, has pushed inflation higher across major economies, prompting central banks such as the Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BoE), Bank of Japan (BoJ), and Bank of Canada (BoC) to keep interest rates unchanged in their latest policy announcements, while maintaining a data-dependent and somewhat hawkish stance [1].
Market participants are increasingly expecting the Fed to delay interest rate cuts, with some even considering the possibility of a rate hike if inflation pressures intensify. According to the CME FedWatch Tool, traders are now pricing in a hold through this year, and the probability of a rate hike by April 2027 has risen to 24.2%, up sharply from 1.9% a week ago [1]. This shift in expectations has exerted steady downside pressure on gold since the start of the war, resulting in two straight monthly losses for the metal, despite its traditional role as an inflation hedge and safe-haven asset [1].
Technical analysis shows that XAU/USD remains capped under the 100-day Simple Moving Average (SMA) at $4,761 and the 61.8% Fibonacci retracement at $4,603, with the Relative Strength Index (RSI) around 41, indicating a bearish near-term bias and persistent downside risks [1]. In the near term, gold is expected to trade with a downside bias, with any upside likely to be sold into, as Middle East tensions continue and supply disruptions through the Strait of Hormuz keep oil prices and inflation concerns elevated [1].
Despite the current corrective pressure, the broader uptrend for gold remains intact, supported by strong structural demand. The World Gold Council’s Q1 2026 Gold Demand Trends report notes that total gold demand, including OTC investment, rose 2% year-over-year to 1,231 tonnes, with central banks purchasing around 244 tonnes (up 3%). Gold-backed ETFs saw inflows of 62 tonnes in Q1, while bar and coin demand surged 42% year-over-year to 474 tonnes [1].
CONCLUSION
Gold is under pressure from persistent higher-for-longer rate expectations and inflation concerns, leading to its second straight weekly and monthly losses. However, strong structural demand and central bank buying continue to support the broader uptrend, even as near-term risks remain skewed to the downside.