Spot gold extended its recovery during Asian trading on Monday, climbing to around $4,400 per ounce. The precious metal had previously experienced alternating rallies and pullbacks after inflation data, but the latest U.S. retail sales figures have reinforced expectations of slowing economic growth and a potential shift in Federal Reserve policy, while a weaker dollar provided additional support for dollar-denominated gold.
U.S. retail sales fell 0.6% month-over-month in July, underperforming both the revised 0.2% gain in June and the market's forecast of roughly 0.1% growth. This marks a significant reversal in the trend of consecutive retail sales increases. On a year-over-year basis, July retail sales still grew 5.0%, indicating that U.S. consumer spending has not collapsed entirely, but the sudden weakness in the monthly data has prompted investors to reassess the sustainability of consumer spending in the second half of the year. Core retail sales also declined, further heightening attention on the pace of economic growth in the third quarter.
However, the July decline in retail sales does not necessarily signal a sustained contraction in U.S. consumer demand. Part of the drop is attributed to lower gasoline prices, weaker auto sales, and shifts in the timing of major online promotional events. Therefore, the single-month data still needs to be evaluated alongside upcoming employment, income, and service consumption data. Market surveys indicate that some discretionary spending areas remain resilient, and service consumption, such as dining out, continues to grow, suggesting the U.S. economy is currently closer to a "growth slowdown" rather than a "consumer recession."
What has truly altered the pricing logic for gold is the combined signal from recent inflation and consumption data. The U.S. CPI rose only 0.1% month-over-month in July, with the annual rate slowing to 3.4% from 3.5% in June, while core CPI dropped to 2.5% year-over-year. Meanwhile, July PPI was flat month-over-month, significantly below market expectations. The absence of a renewed acceleration in inflation, coupled with a temporary cooling in consumption, has led the market to further reduce concerns about the Fed tightening policy in the near term.
Changes in interest rate expectations directly impact the opportunity cost of holding gold. Since gold does not generate interest income, when the market expects policy rates to remain high or rise further, the opportunity cost of holding gold relative to dollar-denominated assets typically increases. Conversely, if rate hike expectations decline, putting downward pressure on real interest rates and the dollar, gold's relative appeal strengthens. Current market bets on a Fed rate hike in September have fallen significantly, with surveys showing around a 30% probability, indicating that the mainstream view is gradually shifting from "continued tightening" to "pausing rate hikes."
Meanwhile, capital flows into the gold market have also shown positive changes. After experiencing notable profit-taking, gold ETFs have recently seen renewed buying, suggesting that some institutional investors are using the price pullback to re-establish long positions. Inflows into several major gold ETFs have been observed, while global central bank demand for gold remains resilient, providing fundamental support for gold's medium-term price.
From a global market perspective, gold is currently influenced by four factors: the dollar, U.S. Treasury yields, real interest rates, and safe-haven demand. If U.S. economic data continues to signal a slowdown, further reducing Fed rate hike expectations, the dollar index and Treasury yields may come under pressure, potentially giving gold additional upside. Conversely, if subsequent employment, service sector activity, or inflation data show renewed strength, prompting markets to reprice rate hike probabilities, gold's recent gains could face profit-taking.
Geopolitical tensions remain another variable for gold bulls. Ongoing uncertainties in the Middle East and around key shipping lanes have not fully dissipated. If energy supplies or international shipping face further disruptions, safe-haven capital could flow back into gold. However, a substantial de-escalation in these tensions could temporarily reduce gold's safe-haven premium, making this factor more of a short-term amplifier than a sole driver of medium-term trends.
Overall, a clear logic chain has formed in the current gold market: mild U.S. inflation → cooling consumption data → declining Fed rate hike expectations → reduced pressure on the dollar and interest rates → rising gold appeal. However, the market has already priced in some expectations for rate cuts or a pause in hikes ahead of time. Therefore, whether gold can break through its previous highs will depend on whether new economic data continues to validate this policy outlook.
Key Technical Levels to Watch
On the daily chart, spot gold has reclaimed the 100-day moving average near $4,380 and is trading above the mid-line of the 20-day Bollinger Bands, maintaining a generally bullish trend structure. After a rapid pullback from a two-month high driven by inflation data, the correction did not damage the primary uptrend, indicating solid buying support at lower levels. The daily RSI is around 64, which is in the bullish zone but not yet at extreme overbought levels, suggesting bulls still have room to test overhead resistance.
The immediate resistance to watch is near $4,480, which also aligns with the upper Bollinger Band. This is a critical technical area gold must clear for further gains. A decisive break above $4,480 could open the path toward previous highs. Conversely, repeated failures to break this level could trigger an increase in profit-taking. On the downside, initial support is around $4,385, which holds significance as a moving average and a key battleground for short-term direction. A break below this level could see support at the mid-Bollinger Band near $4,195, with a deeper decline potentially targeting the $3,905 area if the medium-term trend weakens further.
On the 4-hour chart, gold is in a short-term rebound structure, approaching $4,400 as buyers attempt to repair the recent sharp pullback. Short-term momentum favors bulls, but with prices nearing a previous dense trading area, continued upside will require coordination from a weaker dollar and lower Treasury yields. If the 4-hour chart can stabilize above $4,380 and then break $4,480, the short-term trend could shift from a rebound to a new rally. If it fails at resistance and falls back below $4,380, it could evolve into a high-level consolidation, seeking support near $4,200.
In terms of trading rhythm, it is currently advisable to avoid simply chasing the rally. Instead, focus on relationships between breakout confirmation and pullback support.
Bottom Line
Gold's core support is currently derived from cooling U.S. inflation, weakening retail sales, and declining Fed rate hike expectations. The return of ETF inflows further improves the medium-term demand environment. As long as the fundamental backdrop does not show a clear reversal, gold is likely to maintain a bullish bias. However, the market has already factored in a significant amount of policy expectations, and gold has accumulated some profit-taking after its rebound from lows. Therefore, further upside is not without hurdles. The $4,480 level is a key hurdle bulls must overcome in the next phase, while $4,380 is a critical support for judging whether the current uptrend can be sustained. Should U.S. economic data continue to soften, the dollar weaken, and real yields fall, gold has potential for further gains. Conversely, if inflation re-accelerates or the Fed signals a more hawkish stance, caution is warranted as gold could face a deeper technical correction.
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