14.07.202611:03 Forex Analysis & Reviews: XAU/USD Price Analysis and Forecast: US-Iran Tensions and Expectations of Fed Rate Hikes Limit Gold's Upward Momentum

Gold (XAU/USD) is attempting to recover and continues to trade near the almost two-week low reached earlier on Tuesday. Nevertheless, during the first half of the European session, the metal remained positive, holding above the psychologically important $4,000 level amid mixed market signals.

The U.S. dollar is edging lower as market participants remain cautious ahead of the latest U.S. Consumer Price Index (CPI) report and Federal Reserve Chair Kevin Warsh's first appearance before Congress. This is providing some support for the precious metal. At the same time, escalating tensions between the United States and Iran, along with growing expectations of another Fed rate hike, are preventing a more pronounced decline in the U.S. dollar and limiting gold's upward potential.

Later today, the U.S. CPI report will be released. Headline inflation is expected to slow, largely due to the sharp decline in gasoline prices during June. However, the market's primary focus will be on the core CPI, which is considered the key gauge of underlying inflation. In addition, Federal Reserve Chair Kevin Warsh's first semiannual testimony before the House Financial Services Committee may influence expectations regarding the future path of interest rates. These expectations, in turn, are likely to determine the U.S. dollar's short-term direction and could provide a significant catalyst for gold.

Meanwhile, the closure of the Strait of Hormuz and the escalation of the conflict between the United States and Iran have pushed oil prices to a new monthly high, fueling inflation concerns and increasing the likelihood that U.S. interest rates will remain elevated for longer.

On Monday, U.S. forces carried out strikes against Iran for the third consecutive night after President Donald Trump reinstated a naval blockade of Iranian ports. In response, Iran's Islamic Revolutionary Guard Corps (IRGC) launched attacks on U.S. facilities in the region, while two UAE oil tankers were struck by Iranian cruise missiles in the Strait of Hormuz. The market quickly priced in a geopolitical risk premium, providing additional support for the U.S. dollar.Given these fundamental factors, the downward scenario for gold remains the more likely outcome. Therefore, any further recovery may be viewed as a selling opportunity. The XAU/USD pair remains vulnerable to further losses, with the next downward target being a retest of the yearly low around $3,940, recorded on June 30.

From a technical perspective, the precious metal continues to trade below the 200-day Simple Moving Average (SMA), maintaining a bearish outlook. Momentum indicators also remain in negative territory, confirming that sellers retain control. Any further recovery is likely to encounter resistance around the $4,100 psychological level.

On the other hand, immediate support is located at $4,000, followed by $3,960, while a break below these levels would expose the yearly low near $3,940.