Gold climbs back to $4,350; remains below June 17 high as USD sticks to gains
- Gold kicks off the new week on a softer note as Mideast tensions benefit the safe-haven USD.
- Oil prices fuel inflation fears and keep Fed hike bets on the table, also undermining the bullion.
- Traders look forward to this week’s US inflation figures for more Fed cues and a fresh impetus.
Gold (XAU/USD) reverses a modest intraday dip and climbs to the top boundary of its daily range, closer to the $4,350 level heading into the European session on Monday. The commodity, however, remains below its highest level since June 17, touched on Friday, following the release of the US Nonfarm Payrolls (NFP) report. In fact, the crucial US monthly employment data showed that the economy unexpectedly lost 23K jobs in July, while the previous month's reading was also revised down to 20K from 57K. This pointed to signs of a cooling US labor market and undermined the case for the US Federal Reserve (Fed) to raise interest rates, which, in turn, weighed heavily on the US Dollar (USD) and provided a goodish lift to the non-yielding bullion.
The immediate market reaction, however, turned out to be short-lived as uncertainties surrounding the Middle East crisis and the reopening of the Strait of Hormuz offered some support to the safe-haven Greenback. In fact, Iran reiterated conditions for a full reopening of the critical waterway, including an end to the US naval blockade, the removal of sanctions and compensation for war damage. Moreover, Tehran has ruled out direct talks with the US, citing alleged violations of the interim peace agreement reached in June. This keeps the geopolitical risk premium in play and underpins the USD, which should cap gold.
Meanwhile, the US-Iran standoff acts as a tailwind for crude oil prices. Investors remain worried that rising energy prices will rekindle inflationary pressures and force major central banks to adopt a more hawkish stance. Furthermore, the CME Group's FedWatch Tool indicates that traders are still pricing in a greater chance that the US central bank will raise borrowing costs by the year-end. The outlook remains supportive of elevated US Treasury bond yields, which favors USD bulls and backs the case for a further depreciating move for gold. Traders, however, might opt to wait for the latest US inflation figures this week.
According to TD Securities, “the risk of a hike lingers,” but the bank argues that upcoming inflation data could shift market pricing meaningfully. The team expects “core and headline CPI this week (0.20% m/m and 0.15% m/m, respectively)” and contends that such outcomes “would likely lead to further pricing out of hikes.” With “the majority of the recent move higher in rates driven by Fed expectations,” TD Securities adds that “rates could move lower as hikes are priced out.”
XAU/USD daily chart
Technical Analysis: Gold needs to surpass 100-SMA to back the case for further gains
The XAU/USD pair keeps a broadly capped tone below the 100-day Simple Moving Average (SMA) at roughly $4,390 and the 200-day SMA near $4,496. Meanwhile, the Moving Average Convergence Divergence (MACD) stays positive, and the Relative Strength Index (RSI) holds in a bullish but not yet overbought region around 64. Moreover, the commodity has reclaimed the 38.2% Fibonacci retracement of the April-June downfall at about $4,303.27, though the cluster of higher retracement levels and longer-term averages overhead still suggests rallies are vulnerable.
On the topside, immediate resistance emerges at the 100-day SMA near $4,390, followed by the 50% retracement around $4,414. A daily close above these would expose the 200-day SMA at approximately $4,496 and the 61.8% retracement near $4,525, with further barriers at the 78.6% level around $4,683 and the recent cycle high close to $4,884. On the downside, initial support is seen at the 38.2% retracement near $4,303, ahead of the 23.6% level around $4,166, while a deeper setback toward the anchor zone near $3,944.21 cannot be ruled out if sellers regain control.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
