XAU/USD Price Analysis and Forecast: Gold Rises as Hopes for US–Iran Diplomacy Weigh on the US Dollar

Gold (XAU/USD) continues to consolidate slightly below the $4,100 level, as buyers prefer to remain cautious ahead of this week's key FOMC meeting.

Ahead of this important central bank event, renewed hopes for a diplomatic resolution to the five-month conflict between the United States and Iran have triggered a notable decline in oil prices. This is helping to reduce inflation risks and lowering expectations of a Federal Reserve rate hike, which, in turn, is limiting the appeal of the US dollar as a safe-haven asset and providing some support for the precious metal, although gold has not yet been able to develop a sustained upward momentum.Late on Friday, the United States suspended its bombing campaign against Iran after 13 consecutive nights of strikes. US Ambassador to the United Nations Mike Waltz stated that, although US forces remain fully prepared, President Donald Trump wants to give negotiations "some room" to progress. In response, a senior Iranian official told Reuters on Sunday that Tehran would halt its attacks if the United States did the same, increasing expectations of a sustained de-escalation scenario between the two countries.

This led to a partial reduction in the geopolitical risk premium, which had previously placed significant pressure on the US dollar. In addition, the easing of military tensions caused a sharp decline in oil prices and prompted investors to reduce expectations of an immediate Federal Reserve rate hike. This environment has contributed to a moderate decline in US Treasury yields, creating another factor weighing on the dollar after it retested a one-month high last week.Nevertheless, traders remain reluctant to build aggressive bearish positions on the US dollar and prefer to wait for additional signals regarding the Federal Reserve's monetary policy. Therefore, attention remains focused on the outcome of the two-day FOMC meeting on Wednesday.

Meanwhile, market participants continue to question the sustainability of the reduction in hostilities. Sentiment has also been affected by a decline in traffic through the Bab el-Mandeb Strait on 26 July following an attack by Iran-backed Houthi forces in Yemen on Saudi oil facilities along the Red Sea coast.

This has increased concerns about major disruptions to global oil supplies due to limited transit through the Strait of Hormuz, which, in turn, is supporting oil prices. This backdrop is helping to limit a deeper decline in the US dollar and restricting further gains in gold, causing aggressive buyers to remain cautious ahead of the key central bank event.

From a technical perspective, gold remains under pressure, as indicated by negative momentum oscillators. However, the metal has shown resilience above the 20-day Simple Moving Average (SMA), which supports the bullish outlook. The next resistance level is at $4,145, after which buyers will target the psychological $4,200 level.

However, if gold fails to hold the support level, prices could decline towards the psychological $4,000 level, leaving the metal vulnerable to further losses.