Rising oil prices driven by an escalation in the Middle East pushed gold lower, but the metal reacts less to Brent than to the prospect that the Fed might one day be able to cut rates if inflation allows. That view is shared by New York Fed president John Williams — and XAU/USD bulls take him at his word.

Iran's attacks on UAE energy infrastructure sent December Brent futures to their highest levels since the start of the conflict. The Fed reasonably expects that higher energy prices will, via second-order effects, boost inflation — in which case, monetary policy would need to tighten. The odds of a federal?funds?rate hike in 2026 briefly jumped above 30%, which strengthened the dollar and pushed gold back.

Gold dynamics and the odds of Fed tightening

Let me remind you how gold reacted to the April FOMC meeting. Three dissenters objected to wording suggesting rates "may be cut," arguing that borrowing costs could just as easily rise from current levels. XAU/USD plunged on that wording, though subsequent comments by John Williams helped bulls lick some of their wounds.

Central banks remain big supporters of the metal. According to the World Gold Council, central banks bought 244 tonnes of bars in Q1 — the strongest quarterly flow in a year and ahead of Q4 2025's 208 tonnes. Crypto giant Tether bought 6 tonnes in January–March, bringing its reserves to 132 tonnes, equivalent to $19.8 billion.

Bank of America still expects a gold rally to $6,000/oz over a 12-month horizon based on central?bank activity and other physical?market players. WisdomTree argues that central banks' rate hikes would be a political mistake that would ultimately allow gold to rise.

Indeed, tighter policy by the Fed and other central banks amid a cooling global economy would weaken growth further. The risk of a global recession would mushroom, and in such an environment, XAU/USD typically performs very well.

High demand for physical metal and the still-alive prospect of Fed easing are capping gold's fall. Conversely, de-escalation in the Middle East would likely be the trigger that sends gold soaring.

Technically, a reversal pattern called an Anti?turtles formation may be forming on the daily chart — a potential sign that the corrective move against the uptrend is exhausting. It makes sense to return to gold purchases if XAU/USD breaks resistance at $4,600 and then $4,630.