Gold (XAU/USD) sticks to modest intraday losses heading into the European session on Wednesday and currently trades near the lower end of its daily range, around the $4,025 region, down 0.85% for the day. Despite soft US Consumer Price Index (CPI) and Producer Price Index (PPI) reports, elevated crude oil prices keep the possibility of a US Federal Reserve (Fed) interest rate hike later this year firmly on the table. This, in turn, offers some support to the US Dollar (USD) and drives flows away from the non-yielding bullion.
The US Bureau of Labor Statistics (BLS) reported on Wednesday that the PPI unexpectedly fell 0.3% in June after a downwardly revised 0.6% rise in the previous month. Moreover, the yearly rate decelerated from 6% in May to 5.5% last month. This comes on top of the steepest month-on-month decline in the US CPI since April 2020 and indicates easing price pressures. Traders reacted by paring their expectations of an immediate Fed rate hike, which dragged the USD to its lowest level since June 18 and offered some support to the Gold price on Wednesday.
However, risks of the energy-driven inflation persist as crude oil prices stand firm near a one-month high amid escalating US-Iran tensions and supply disruptions in the Strait of Hormuz. In fact, the US carried out another round of airstrikes against Iran on Wednesday, targeting coastal defense systems and missile infrastructure. Iran responded with retaliatory drone and missile attacks on US-linked military facilities across the region. Moreover, US President Donald Trump warned that critical Iranian infrastructure could be targeted if the situation continues to deteriorate.
Adding to this, Iran’s Islamic Revolutionary Guard Corps threatened to expand the conflict by targeting additional regional energy supply routes. This suggests that Iran could use its Houthi allies in Yemen to threaten shipping through the Bab el-Mandeb Strait. This continues to support crude oil prices, reviving inflationary fears and backing the case for at least one 25-basis-point (bps) Fed rate hike in 2026. This, in turn, might hold back the USD bears from placing aggressive bets and suggests that the path of least resistance for the Gold price remains to the downside.
XAU/USD daily chart
Gold could accelerate the fall once $4,000 is broken decisively
The XAU/USD pair keeps the near-term bias bearish below the 200-day Simple Moving Average (SMA) and within a broader downward parallel channel. However, mixed momentum indicators – a modestly positive Moving Average Convergence Divergence (MACD) reading around 9.43 and a Relative Strength Index (RSI) near 40.77 – hint at only tentative stabilization rather than a sustained recovery.
That said, a sustained break and acceptance below the $4,000 psychological mark would expose the year-to-date low, around the $3,943-$3,942 region, touched in June. The subsequent fall could extend further and drag the Gold price to a key structural support around $3,675.71, representing the lower band of the channel. A decisive break below this level would reinforce the prevailing bearish tone.
On the topside, initial resistance emerges at the upper boundary of the descending channel near $4,093.63, where any rebound would likely face selling pressure. A sustained break above that area would expose the 200-day SMA as the next significant barrier around $4,495.94.
(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.
SOURCE LINK : Gold struggles near daily low as Mideast tensions boost Fed bets
