Gold consolidated near $4,345 per troy ounce on Monday as buyers took a pause following last week's surge of more than 7%. The rally, which lifted prices to their highest point since mid-June, was driven by weaker US employment figures and shifting expectations around Federal Reserve monetary policy. Investors are now looking ahead to key US inflation reports scheduled for later this week to determine the metal's next move.
Shifting interest rate expectations and economic data
The primary driver behind gold's recent advance has been a repricing of US interest rate forecasts. Following softer Nonfarm Payrolls data, market expectations for a Federal Reserve rate increase at its September meeting fell significantly. According to the CME FedWatch Tool, the probability of a September rate hike dropped to approximately 44%, down from 67% just a week prior.
When interest rate expectations decline, US Treasury yields and the US dollar frequently experience downward pressure. The 10-year US Treasury yield recently settled around 4.67%, easing from a peak near 4.74%. Meanwhile, the US Dollar Index hovered near 99.70, remaining close to a two-month low. Because gold is priced internationally in US dollars, a softer greenback makes the metal relatively less expensive for buyers using other currencies, while lower yields reduce the opportunity cost of holding non-yielding bullion.
Market participants are now waiting for Wednesday's Consumer Price Index (CPI) report and Thursday's Producer Price Index (PPI) figures. Strategists at Brown Brothers Harriman noted that a softer CPI result could further weaken the dollar by reinforcing expectations of a dovish policy stance. Conversely, a higher inflation reading might prompt a short-term rebound in the dollar, though the firm suggested that scope for aggressive rate hikes remains constrained given that policy is already in restrictive territory.
Middle East developments and energy markets
Geopolitical tensions in the Middle East continue to provide background support for safe-haven assets, though recent diplomatic signals have tempered immediate inflation fears. Reports that Iran and Oman were moving closer to an agreement regarding the Strait of Hormuz helped ease concerns over oil supply disruptions, bringing crude prices down from recent peaks. Nevertheless, energy costs remain well above pre-war levels, leaving underlying inflation risks active.
Uncertainty regarding diplomatic efforts persists. While US President Donald Trump stated that Washington is engaged in semi-negotiations while scaling down military actions, Iranian officials denied holding direct discussions. Iranian Foreign Ministry spokesperson Esmaeil Baghaei emphasised that maritime security in the region remains contingent on an end to military operations and financial compensation for prior damage.
Technical levels and market structure
From a technical perspective, gold maintains a constructive posture above its 50-day Simple Moving Average (SMA), which currently sits around $4,150. Immediate resistance is identified at the 100-day SMA near $4,389, followed by a major horizontal resistance zone around $4,500. A break above these thresholds would be required to signal a broader continuation of the upward trend.
On the downside, initial support rests near $4,150 at the 50-day average, with a stronger horizontal support level situated around $4,000. Momentum indicators show the daily Relative Strength Index in the mid-60s, indicating firm upward momentum without reaching overbought territory. Check the live gold price to monitor real-time fluctuations as economic data is released.
Key takeaways
- Gold stabilised around $4,345 per troy ounce following a 7% advance last week.
- Expectations of a September Fed rate hike have fallen from 67% to 44% over the past week.
- Upcoming US CPI and PPI reports are expected to provide clear direction for the US dollar and interest rates.
- Key technical resistance sits at $4,389, with key support positioned at $4,150 and $4,000.
Common questions
Why did gold rise sharply last week?
Gold climbed over 7% last week following weaker-than-expected US employment data, which reduced expectations of future Federal Reserve interest rate increases and weighed on the US dollar.
How do US inflation figures impact the price of gold?
Inflation data influences Federal Reserve monetary policy. Higher interest rates typically increase the opportunity cost of holding non-yielding assets like gold, while lower rate expectations tend to support precious metal prices.
With US inflation data fast approaching and geopolitical uncertainty persisting, gold remains closely tied to interest rate expectations and currency movements. Investors will be watching this week's economic indicators closely to gauge whether the precious metal can build upon its recent gains or enter a consolidation phase.