Gold prices dropped roughly 0.70% on Friday. Investors, wary about inflation spiking again amid the ongoing turmoil in the Middle East, seem to be gravitating towards the dollar as a safer option. This trend has contributed to an anticipated weekly loss for gold of more than 2%. Moreover, weaker growth figures from the U.S. have sparked speculation about a potential rate cut in 2026.
Bullion Drops Below $5,050 as Yields Rise and Tensions Persist
XAU/USD currently trades at $5,032, having hit a high of $5,128 earlier in the day. The US Dollar Index (DXY), which measures the dollar against a basket of other currencies, climbed 0.70% to 100.43, further pressuring gold prices.
Recent U.S. growth statistics indicate that the economic slowdown is likely to persist into the latter half of 2025. The Department of Commerce reported that GDP in Q4 of 2025 decreased from 1.4% to 0.7% year-on-year according to revised estimates.
In parallel, the Core Personal Consumption Expenditures (PCE) Price Index, which the Federal Reserve uses as its preferred measure of inflation, held steady in January at an annual rate of 3.1%, unchanged from previous readings. However, the headline number dipped slightly from 2.9% to 2.8% year-on-year.
This all paints a concerning picture, hinting at a potential stagflation scenario. Standard & Poor’s recently cautioned that conflict with Iran could lead to extended supply issues, resulting in diminished U.S. GDP growth and heightened inflation.
Fed Likely to Keep Interest Rates Steady
Treasury yields in the U.S. have surged, which is weighing down the precious metals market. The yield on the US 10-year Treasury note rose nearly 2.5 basis points, now at 4.286%.
Traders in the money market have begun to adjust their expectations about the Fed’s approach, anticipating a 20 basis point reduction based on insights from the Chicago Board of Trade (CBOT).
As WTI prices hit a year-to-date high of $113.00, expectations for rising costs in the U.S. are growing amid the ongoing Middle East conflict. Gasoline prices have surged over 20%, reaching $3.60 per gallon, the highest since the conflict began a fortnight ago.
President Donald Trump stated that the U.S. will take definitive measures against Iran next week, following a 30-day waiver to purchase Russian oil that is currently under sanctions.
Upcoming U.S. Economic Indicators
Traders are keenly monitoring geopolitical developments over the weekend and will then turn their attention to the Federal Reserve meeting scheduled for March 17-18. Other upcoming economic indicators include figures on industrial production, housing data, the producer price index (PPI), and employment statistics.
XAU/USD Technical Outlook: Gold Tests $5,000 Support
In the short term, gold’s technical indicators appear bearish, with XAU/USD on a path towards dropping below $5,000, which could lead to a test of the 50-day simple moving average (SMA) at $4,925.
The shift in momentum towards the bearish side is reflected in the Relative Strength Index (RSI), which has dipped below the neutral level of 50.
Considering these dynamics, the most probable scenario is a downward trend. Should it fall below the 50-day SMA, the next support level would be the swing low of $4,841 from February 17, just above the daily low of $4,655 from February 6. Conversely, key resistance levels for a potential rise in XAU/USD include $5,050, followed by $5,100. The next significant resistance is marked by the March high of $5,238.
