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.

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.

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.