Gold is holding the previous recovery from near $4,300 on early Monday, struggling around the key $4,400 level. However, buyers retain control as the new week kicks in, with all eyes on the Middle East updates and the Minutes of the US Federal Reserve (Fed) July monetary policy meeting.
Gold: More upside appears in the offing
Gold is capitalizing on renewed US Dollar (USD) weakness as markets keep slashing bets on a potential Fed interest rate hike in September, following cooling inflation and retail spending in the United States (US) as well as a dip in consumer sentiment.
The University of Michigan’s (UoM) Surveys of Consumers said on Friday that its Consumer Sentiment Index dropped to 51.0 in August from 55.2 in July, ending two straight months of improvement. The market forecast was for 54.5.
Markets are currently pricing in just a 30% chance that the Fed will raise rates next month, down from roughly 50% seen a week ago, according to the CME Group’s FedWatch Tool.
Less hawkish Fed expectations counter looming uncertainty over the US-Iran peace deal and the reopening of the Strait of Hormuz, leaving the Greenback on the back foot as Gold buyers look to extend their control.
However, Oil prices appear to have caught a fresh bid on the latest news that Israel resumed airstrikes against Lebanon in the past few days, likely violating the ceasefire, as US President Donald Trump said on Friday that Washington plans to hit Iran’s economy hard with sanctions.
Therefore, it remains to be seen if Gold retains the upper hand should the Gulf war re-escalate and revive the Oil price uptrend and inflation concerns.
That being said, any dip in Gold is likely to be bought as its daily technical setup remains constructive.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,391.42, holding a constructive bullish bias as spot remains above the 21-day and 50-day simple moving averages (SMAs) while hovering just over the 100-day SMA at $4,385.88. This configuration suggests the recent advance is still supported by the broader trend, though the proximity of price to the 100-day SMA hints at a market pausing to reassess upside momentum. The Relative Strength Index (14) at 64.26 stays below overbought territory, indicating firm but not yet excessive buying pressure.
On the topside, initial resistance emerges at the 200-day SMA, now aligned near $4,506.68, where a clear break would be needed to unlock a more decisive bullish extension. On the downside, immediate support is defined by the 100-day SMA at $4,385.88, with additional layers of demand seen at the 21-day SMA around $4,185.07 and the 50-day SMA near $4,147.70; a daily close below these latter averages would weaken the current positive tone and signal a deeper corrective phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold upside seen as Fed pause expectations align with renewed ETF demand
Analysts at Commerzbank argue that the outlook for bullion remains constructive, noting that, “as we expect the Fed not to raise interest rates, the gold price therefore still has further upside potential.” They acknowledge that the path higher is unlikely to be smooth, pointing out that “the fact that this will not happen in a straight line is illustrated by the price fall since yesterday to USD 4,320 per troy ounce.” Beyond the rate backdrop, Commerzbank highlights “renewed buying interest from ETF investors” as an additional tailwind, citing Bloomberg data showing that “these investors have been buying gold over the past six trading days,” marking “the longest period of uninterrupted ETF inflows since April,” with total inflows of “almost 21 tons.”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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