Gold (XAU/USD) price erases Monday’s gains, diving over 1.30% on Tuesday, pressured by broad US Dollar (USD) strength, driven by a hawkish Federal Reserve (Fed), as well as a risk-off mood that is driving flows toward the Greenback's safe-haven appeal. The XAU/USD pair trades at $4,139, after reaching a daily high of $4,198.

XAU/USD falls as Dollar strength and higher yields dominate

Market sentiment remains dismal, driven by losses in technology companies, amid investors' concerns about frothy valuations in AI-related companies. At the same time, the US Dollar Index (DXY), which tracks the Dollar’s performance against a basket of six peers, is up 0.40% at 101.39, a year-to-date (YTD) high.

The hawkish tilt by the Federal Reserve continues to weigh on the non-yielding metal, after nearly half of its members favor a restrictive policy. Money markets now expect at least 34 basis points of tightening toward the end of 2026, a huge reversal after anticipating close to 60 bps of easing in mid-January.

Hence, expectations for a higher-for-longer scenario are underpinning US Treasury yields, with the 2-year T-note, the most sensitive to the path of interest rates, sitting at 4.19%, 71 basis points higher than at the beginning of 2026, when it was 3.475%.

US data was also benign, as the S&P Global Manufacturing PMI in June rose to 55.7, up from 55.1 in May and exceeding estimates of 54.8. The report showed that activity improved due to companies front-loading orders to avoid shortages and rising prices, derived from the US-Iran war energy shock.

In the meantime, talks between the US and Iran show progress, according to Iran’s ambassador to the UN. At the same time, Washington lifted sanctions on Iran for 60 days from Monday, even though hostilities in Lebanon remained.

The re-opening of the Strait of Hormuz is alleviating inflationary pressures, with Oil prices continuing to fall for the second straight week. In the day, WTI is down 1.34% to $73.08 per barrel, losing over 3% so far this week.

Ahead this week, the US economic docket will feature the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, Gross Domestic Product (GDP) figures, and jobless claims data on Thursday.

XAU/USD price forecast: Gold bearish bias intact, sellers eye $4,000

Gold’s technical picture shows that sellers remain in charge after the XAU plunged below the 200-day Simple Moving Average (SMA) at $4,446, which is a crucial level for buyers to reclaim if the yellow metal is set to recover.

Worth noting that the downtrend remains in place, as XAU/USD has posted four consecutive trading days of lower highs and lower lows, with bears eyeing a clear break below $4,100, which would open the door to a test of the June 11 daily low at $4,023. Below this level is $4,000.