Gold sticks to intraday losses as oil-driven inflation fears lift Fed rate hike odds

Gold (XAU/USD) maintains its offered tone through the first half of the European session on Wednesday and remains vulnerable after the previous day's failed attempt to find acceptance above the $4,100 mark. Despite soft US Consumer Price Index (CPI) data, investors remain worried about energy-driven inflation as escalating US-Iran tensions and the closure of the Strait of Hormuz contribute to elevated crude oil prices. Furthermore, US Federal Reserve (Fed) Chair Kevin Warsh’s commitment to price stability in his first congressional testimony leaves the door open for at least one rate hike by year's end and undermines the non-yielding bullion. However, a weaker US Dollar (USD) helps the commodity to hold above the $4,000 psychological mark and a nearly two-week low, touched on Tuesday.

The US Bureau of Labor Statistics reported that the headline Consumer Price Index (CPI) declined 0.4% in June, representing the largest one-month decrease since April 2020 and missing expectations of a 0.1% fall. Furthermore, the core gauge, which strips out volatile food and energy prices, was flat in June, compared to 0.3% consensus estimate. On a yearly basis, the headline and the core CPI decelerated to 3.5% and 2.6%, respectively, also missing forecasts. The data prompted traders to trim expectations of Fed rate hikes and dragged the USD to a nearly four-week low. The initial market reaction, however, faded quickly after Fed Chair Kevin Warsh told Congress that the central bank had no tolerance for persistently high inflation, while also touting the strength of the US economy.

Moreover, the recent rise in crude oil prices to a nearly one-month high poses a direct inflation risk, backing the case for further tightening by the Fed. According to the CME Group's FedWatch Tool, traders are pricing in the possibility that the US central bank will raise borrowing costs, either in September or December. Apart from this, persistent geopolitical risks stemming from the ongoing conflict in the Middle East hold back traders from placing aggressive bearish bets on the safe-haven buck. The US military launched another round of airstrikes against Iran, while Iran retaliated with attacks on US military assets in Gulf countries. Moreover, US President Donald Trump warned that the US would strike Iranian bridges and power plants unless Tehran returns to the negotiating table.

The aforementioned fundamental backdrop favors the USD bulls, suggesting that the path of least resistance for the Gold price remains to the downside. Traders now look forward to the release of the US Producer Price Index (PPI), which, along with Fed Chair Kevin Warsh's second day of congressional testimony, should influence the USD. Apart from this, the market focus will be on further developments surrounding the Middle East crisis, which might continue to infuse volatility in financial markets and contribute to producing short-term trading opportunities around the precious metal.

XAU/USD daily chart

Gold bears might target $4,000 ahead of weekly low

The XAU/USD pair holds within a downward parallel channel and well beneath the 200-day Simple Moving Average (SMA), which keeps the broader tone capped despite the recent bounce. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator has turned positive and is edging higher, hinting at improving but still constrained upside momentum as the Relative Strength Index (RSI) lingers around a neutral 40.80 level.

Hence, the top boundary of the channel near $4,140.69 might continue to act as the first meaningful barrier within the current structure. A sustained strength beyond the said hurdle is needed to ease the prevailing bearish bias. On the downside, the lower end of the descending channel around $3,718.03 offers the next key support, where a stronger reaction would be needed to suggest that sellers are losing control of the near-term trend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)