Gold retreats from June 5 high as oil-driven Fed rate-hike bets underpin USD

Gold (XAU/USD) retreats after touching a fresh high since June 5, around the $4,450 area, during the Asian session on Thursday and is currently placed near the lower end of its daily range. The immediate market reaction to signs of moderating US inflation seems to have faded amid expectations that higher energy prices will rekindle inflationary pressures. Furthermore, bets that the US Federal Reserve (Fed) will deliver at least one interest rate hike by the end of this year prompt some profit-taking and drive flows away from the non-yielding bullion.

The US Bureau of Labor Statistics reported on Wednesday that the headline US Consumer Price Index (CPI) eased in line with market expectations, from 3.5% to 3.4% YoY in July. Adding to this, the core gauge, which excludes volatile food and energy prices, rose 0.2% and 2.5% on a monthly and yearly basis, respectively, matching consensus estimates. This comes on top of last Friday's weak US Nonfarm Payrolls (NFP) report and gives the Fed more room to hold interest rates steady in September, which offered some support to gold.

Investors, however, remain worried about inflation risks stemming from volatile oil prices due to the US-Iran standoff. In fact, President Donald Trump again claimed that the US has "total control" over the Strait of Hormuz, while Iran has pledged to keep the vital waterway closed until all its demands are met. Moreover, Iran-backed Houthis in Yemen escalated attacks on vessels in the Red Sea and Bab el-Mandeb Strait, targeting Saudi ships. This has led to increased war-risk premiums, which continue to lend some support to crude oil prices.

This continues to fuel inflation fears and backs the case for some Fed tightening. According to the CME Group's FedWatch Tool, traders are still pricing in a nearly 80% chance that the US central bank will raise borrowing costs in 2026. This, in turn, helps the US Dollar (USD) build on the previous day's bounce from the post-CPI swing low and exerts some downward pressure on the commodity. However, some follow-through selling below the $4,400 mark is needed to back the case for a meaningful corrective decline in the Gold price.

Traders now look forward to Thursday's US economic docket, featuring the Producer Price Index (PPI) and the usual Weekly Initial Jobless Claims. This, along with speeches from influential FOMC members, will drive USD demand and provide some impetus to the precious metal. Apart from this, further developments surrounding the Middle East crisis might continue to infuse volatility across global financial markets and contribute to producing short-term trading opportunities around the Gold price.

XAU/USD daily chart

Technical Analysis

The previous day's close above the 100-day Simple Moving Average (SMA) and a subsequent move beyond the 50% retracement level of the April-June downfall favor XAU/USD bulls. Adding to this, the Moving Average Convergence Divergence (MACD) indicator remains elevated, reinforcing constructive momentum. Meanwhile, the Relative Strength Index (RSI) at 67.44 hovers near overbought territory, hinting that upside pressure persists but may be nearing a stretched condition.

Hence, strength beyond the daily swing high might confront initial resistance near the 200-day SMA at $4,502. This is closely followed by the 61.8% retracement at $4,525.18, above which the Gold price could climb to the next barriers at $4,683 and $4,885. On the downside, immediate support is provided by the 100-day SMA at $4,387, with lower cushions seen at the 38.2% Fibo. at $4,302 and the 23.6% level at $4,164.38, before a more significant structural floor emerges near $3,941.47.