• Gold price rises to near $4,395 in Monday’s early Asian session.
  • Fed rate hike odds dropped following softer US Retail Sales data.
  • Iranian officials told Trump to “accept the reality of defeat” after declaring that it would not resume talks with the US.

Gold price (XAU/USD) gains momentum to around $4,395 during the early Asian trading hours on Monday. The precious metal extends the rally as cooling US inflation data has dampened expectations for the US Federal Reserve (Fed) interest rate hike.

The US Census Bureau revealed on Friday that US Retail Sales declined by 0.6% MoM in July. This figure followed a rise of 0.2% in June and came in softer than the 0.1% expected. On an annual basis, Retail Sales increased 5.0% in July versus a rise of 6.8% (revised from 6.7%).

This report added to evidence that inflationary pressure is gradually easing after last week's Consumer Price Index (CPI) and Producer Price Index (PPI) data. This, in turn, weighs on the US Dollar (USD) and underpins the USD-denominated commodity price.

Money markets have priced in nearly a 33.1% chance of a September Fed hike, according to the CME FedWatch tool. It’s worth noting that lower interest rates reduce the opportunity cost of holding non-yielding bullion, boosting its investment appeal.

On the other hand, persistent tensions in the Middle East might cap the upside for the yellow metal. Iran’s Deputy Foreign Minister Kazem Gharibabadi called on the US to “accept the reality of defeat and stop indulging in delusions” after US President Donald Trump suggested that he would soon declare the Strait of Hormuz a “territory of the United States.”

On Friday, Iran’s Foreign Minister Abbas Araghchi said that there were “no negotiations currently taking place between Tehran and Washington.” Araghchi added that the US must agree to Iran’s conditions in order for shipping to resume through the waterway.

Gold outlook stays constructive as Fed hike expectations fade and ETF demand returns

Analysts at Commerzbank argue that the backdrop for bullion remains supportive, noting that, “as we expect the Fed not to raise interest rates, the gold price therefore still has further upside potential.” They caution 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.” At the same time, Commerzbank highlights that “another positive factor for the price of gold is the renewed buying interest from ETF investors,” which they see as reinforcing the constructive medium-term outlook for the metal.

Technical Analysis: The positive tone of Gold remains intact

In the daily chart, XAU/USD holds just above the 100-day simple moving average (SMA) and comfortably over the 20-day Bollinger middle band near, keeping the near-term bias constructive while these layers of trend support remain intact. The Relative Strength Index (14) at 64.09 leans toward bullish but not yet overbought territory, suggesting buyers still have room to probe higher levels within the prevailing range.

On the topside, initial resistance is aligned with the upper Bollinger band at $4,480, where recent volatility extremes are likely to attract profit-taking. On the downside, the immediate floor is defined by the 100-day SMA at $4,385.85, with a deeper corrective cushion emerging around the Bollinger middle band at roughly $4,195; a break below that area would expose the lower band support near $3,905.

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

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.