Gold slips as energy-driven inflation fears keep Fed rate hike bets in play
- Gold struggles as higher energy prices keep inflation concerns alive despite soft US CPI and PPI data.
- US Retail Sales, Initial Jobless Claims and speeches from Fed officials take centre stage on Thursday.
- Technically, XAU/USD is locked in the $4,000-$4,200 range, with sellers holding the upper hand.
Gold (XAU/USD) edges lower on Thursday as traders look past back-to-back softer-than-expected US inflation reports and remain focused on renewed Middle East tensions, which are fueling concerns that higher energy prices could reignite inflationary pressure.
At the time of writing, XAU/USD trades around $4,028, down 0.80% on the day.
Both the US Consumer Price Index (CPI) and Producer Price Index (PPI) reports for June came in below market expectations. The softer readings reduced the chances of an imminent Federal Reserve (Fed) interest rate hike, but Gold struggled to gain traction as traders continued to debate whether the Fed could still tighten policy later this year.
Fed officials continue to stress the need to bring inflation sustainably back to the 2% target while noting that the labor market appears to have stabilized. This suggests that the central bank could raise interest rates later this year if inflation proves more persistent.
Elevated borrowing costs reduce Gold's appeal as investors seek higher returns from interest-bearing assets.
Against this backdrop, Gold retains a downside bias, though it has traded broadly between $4,000 and $4,200 in recent weeks after falling to $3,941 in June, its lowest level since November 2025.
Next on the US economic docket are Retail Sales and Initial Jobless Claims data, due at 12:30 GMT. Speeches from Fed officials Lorie Logan and Jeffrey Schmid later in the day will also be watched.
On the geopolitical front, the US carried out a fifth consecutive night of strikes against Iranian targets, while Tehran responded by targeting US assets in Kuwait, Bahrain and Jordan.
Iran also said it would not allow Washington to interfere in the Strait of Hormuz, calling it a "red line." Meanwhile, The Wall Street Journal reported on Wednesday that US President Donald Trump was leaning towards expanding military operations.
Technical analysis: Sellers retain control as XAU/USD struggles below $4,200
On the daily chart, XAU/USD keeps a bearish bias as it remains well below the 200-day Simple Moving Average (SMA) at $4,495 and the 100-day SMA at $4,548.
Price is holding within a downward parallel channel, trading beneath its upper boundary around $4,200, while momentum is mixed. The Relative Strength Index (RSI) near 40 leans slightly bearish, while the Moving Average Convergence Divergence (MACD) remains positive, yet with declining histogram bars, hinting that any rebound would still face structural headwinds overhead.
On the topside, immediate resistance is clustered around $4,200, where the horizontal cap and the channel’s upper line converge, before the more significant barriers at the 200-day SMA near $4,496 and the 100-day SMA close to $4,548.
On the downside, initial support appears at the $4,000 horizontal level, with a deeper cushion at the channel floor around $3,800.
(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.
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