Gold advances to fresh high since June amid renewed USD selling, fading Fed hike bets

• Gold regains positive traction as the USD hangs near a three-month low amid receding Fed rate-hike bets.
• Inflation risks stemming from higher oil prices support US bond yields, which could help limit USD losses.
• The US-Iran standoff keeps geopolitical risk premium in play and warrants some caution for USD bears.

Gold (XAU/USD) hits a fresh high since early June, around the $4,544 region, during the Asian session on Friday and looks to build on the momentum above a technically significant 200-day Simple Moving Average (SMA). Traders scaled back their bets for an immediate interest rate hike by the Federal Reserve (Fed) after the latest US inflation data released last week pointed to signs of cooling price pressures. This keeps the US Dollar (USD) depressed near its lowest level in over three months, touched on Thursday, and turns out to be a key factor supporting the non-yielding bullion.

Investors, however, remain worried about inflation risks stemming from higher oil prices, bolstered by the US-Iran standoff over the Strait of Hormuz. Adding to this, Yemen’s Iran-backed Houthi militant group claimed to have targeted eight oil tankers since declaring a maritime blockade on Saudi shipping in late July, raising the risk of a broader regional conflict and lifting oil prices to a three-week high on Thursday. This, to a large extent, overshadows the US Treasury Department's plan to double the size of some long-dated debt buyback operations and remains supportive of elevated US bond yields.

Meanwhile, Minutes from the July 28-29 FOMC meeting, released on Wednesday, revealed that Fed officials indicated the need to raise interest rates soon unless there was more progress on bringing down inflation. Moreover, CME Group's FedWatch Tool indicates that investors are still pricing in around a 68% chance that the US central bank will raise borrowing costs at least once by the year-end. This, along with persistent geopolitical uncertainties, could help limit deeper losses for the safe-haven buck and hold back bullish traders from positioning for any further appreciating move for gold.

In the latest developments surrounding the Middle East crisis, President Donald Trump said on Wednesday that the US will launch the "most crushing economic operation" against Iran. Furthermore, Trump threatened to impose severe penalties on any nation that helps Tehran evade sanctions or does business with Iran. Adding to this, Vice President JD Vance said that economic pressure is the most effective tool against Iran. This keeps the geopolitical risk premium in play, backing the case for the emergence of some USD buying at lower levels, which, in turn, might keep a lid on the Gold price.

XAU/USD daily chart

Technical Analysis

The XAU/USD pair seems to have found acceptance above the 200-day SMA, with bulls now awaiting a move beyond the 61.8% Fibonacci retracement level of the April-June decline before placing fresh bets. Moreover, the Moving Average Convergence Divergence (MACD) indicator remains positive, reinforcing the upward bias. Meanwhile, the Relative Strength Index (14) at 67.70 flirts with overbought territory, hinting at strong but potentially stretched bullish momentum.

Nevertheless, the broader technical setup suggests a constructive near-term tone. Hence, sustained strength above the 61.8% Fibo. at $4,529 should pave the way for additional gains to the 78.6% retracement at $4,687, ahead of the cycle high at $4,889. On the downside, immediate support is seen at the 61.8% retracement at $4,529.03, followed by the 200-day SMA at $4,514.16 and then the 50% retracement near $4,417. Deeper floors emerge at the 38.2% level at $4,306.50, the 23.6% retracement around $4,168, and the structural low anchored near $3,946.

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