Spot gold (XAU/USD) is trading on a weaker note during the Asian session on Friday, failing to build on a move above the $4,100 level and now facing renewed downward pressure.
The decline in the yellow metal is primarily attributed to a rebound in the US dollar. The dollar index has recovered from its lowest level since June 17, attracting renewed buying interest, which in turn weighs on dollar-denominated gold. Earlier, US economic data had provided a boost to gold prices. Data from the Bureau of Economic Analysis showed the US economy grew at an annualized rate of 1.5% in the second quarter, down from 2.1% in the previous quarter and below market expectations, signaling a slowdown in economic momentum.
Meanwhile, US inflation data continues to show signs of cooling. The Personal Consumption Expenditures (PCE) price index fell 0.1% month-on-month in June, the first monthly decline since April 2020. On an annual basis, the headline PCE inflation rate eased from 4.1% to 3.7%, in line with expectations. The core PCE index, the Federal Reserve's preferred gauge, slowed its annual pace from 3.4% to 3.3%, while the monthly increase moderated from 0.3% in May to 0.1%. These figures temporarily reduced market bets on the Fed tightening policy further in the near term, pushing the dollar lower overnight and providing a lift for gold.
However, concerns about inflation risks have not completely dissipated, particularly as crude oil prices remain volatile due to geopolitical factors. Energy costs could potentially rekindle inflationary pressures. The situation in the Middle East remains a significant influence on gold's trajectory. The US has announced the completion of a new round of military operations against Iran-related targets, while maritime security issues in the region continue to draw market attention. Iran has rejected proposals for a joint management scheme for the Strait of Hormuz, and Saudi Arabia is pushing for international cooperation to protect vital shipping routes in the Bab el-Mandeb Strait, the Red Sea, and the Gulf of Aden. Markets fear that an escalation of regional tensions could disrupt global energy supplies and drive crude oil prices higher.
In such a scenario, inflationary pressures could resurface, compelling the Fed to maintain a tighter policy stance, which would limit gold's upside potential. Investors currently see a more than 85% probability of at least one rate hike by the Fed before the end of the year. These elevated rate hike expectations are supporting a rebound in US Treasury yields and attracting capital flows back into dollar-denominated assets, creating headwinds for the non-yielding metal.
Where to focus next
Despite the headwinds, gold continues to find some underlying support. With the US economy slowing and inflation declining, the market remains divided on the future direction of monetary policy. If subsequent economic data continues to weaken, it could rekindle expectations for easing and provide fresh upward momentum for gold. Currently, XAU/USD remains within the trading range established over recent weeks, awaiting a new fundamental catalyst. Key factors for investors to watch include US consumer confidence data, shifts in inflation expectations, the trajectory of Treasury yields, and geopolitical risk developments. These elements will likely determine the next phase of gold's breakout.
From a daily chart perspective, gold is exhibiting a weak, range-bound structure. The price has retreated after encountering resistance near the $4,100 level, marking a period of consolidation at elevated levels. The technical pressure from the prior break below the 200-day moving average has not yet been fully resolved, and the current sideways movement appears to be a corrective phase following the decline. Regarding technical indicators, the MACD histogram remains in positive territory but its momentum is waning. The RSI is hovering near the 50 level, suggesting a balance between buying and selling pressure, but with limited upside energy. On the upside, resistance is seen at the range top near $4,175. A decisive break above this level could pave the way for a move towards the $4,200 mark, followed by the stronger resistance zone around the 200-day moving average. On the downside, initial support is at the psychological $4,000 level and the recent low near $3,976. A breakdown below this area could open the door for further declines.
On the 4-hour timeframe, gold's short-term momentum has turned negative. The price has repeatedly failed to sustain above the $4,100 level and is now experiencing a pullback, with short-term moving averages exerting increasing pressure. The market is currently in a phase of consolidation and correction. If the price can hold above the $4,000 region, a short-term bounce remains possible, potentially retesting the resistance zone between $4,100 and $4,175. However, a break below the $3,976 support could accelerate the decline towards the $3,900 area. Technical indicators point to rising short-term selling pressure, but a clear downtrend has not yet been established. The near-term direction will depend on the strength of the US dollar and evolving expectations for Fed policy.
Key takeaways
Gold's recent price action reflects the ongoing tug-of-war between economic slowdown, disinflation, and the risk of policy tightening. Weaker US economic data and cooling inflation provide support for gold, but volatile energy prices and the Fed's rate hike expectations limit further upside for bulls. In the short term, the direction of the US dollar and Treasury yields will be the core factors determining gold's trajectory. If the market continues to dial back rate hike expectations, gold could regain its upward momentum. Conversely, if geopolitical risks push oil prices higher and strengthen inflation concerns, leading the Fed to keep rates higher for longer, gold is likely to remain under pressure. Overall, gold remains in a pivotal trading range, with the $4,000 support level and the $4,175 resistance zone standing as the key battle lines for the near term. Investors should closely monitor macro data releases and global risk events to gauge the next directional breakout.
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