Gold extended its recent rally on Friday, reaching a fresh high since early June around $4,544 during Asian trading. The precious metal now sits comfortably above the 200-day simple moving average (SMA), a level that many technical traders watch closely. The move was driven by a weaker US dollar and a shift in expectations about the pace of Federal Reserve interest rate increases.
Why gold is rising
The renewed selling pressure on the US dollar is a key factor behind gold's advance. The dollar index hovered near its lowest level in more than three months, after last week's US inflation data showed signs of cooling price pressures. That data prompted traders to scale back bets that the Fed would raise rates again imminently. Lower interest rate expectations reduce the opportunity cost of holding non-yielding assets such as gold.
However, the picture is not entirely one-sided. The Federal Reserve's July meeting minutes, released on Wednesday, indicated that officials still saw a need to raise rates soon unless inflation fell more quickly. The CME FedWatch Tool shows markets pricing in roughly a 68% chance of at least one rate hike by the end of the year. This uncertainty, combined with persistent geopolitical risks, has kept some safe-haven demand for the US dollar alive, which could cap further gains for gold.
Geopolitical tensions and oil prices add complexity
Geopolitical developments in the Middle East are adding another layer of risk. The US-Iran standoff over the Strait of Hormuz, and claims by Yemen's Houthi group of having targeted eight oil tankers since late July, have pushed oil prices to a three-week high. While higher oil prices can fuel inflation worries, they also tend to support the dollar as a safe haven, potentially limiting gold's upside. President Donald Trump this week threatened the “most crushing economic operation” against Iran, and Vice President JD Vance said economic pressure was the most effective tool. These tensions keep the geopolitical risk premium in play.
Technical picture
From a technical standpoint, gold has found acceptance above the 200-day SMA, now at $4,514. The 61.8% Fibonacci retracement of the April-June decline sits at $4,529, and bulls are eyeing a move beyond that level. The MACD indicator remains positive, while the Relative Strength Index (RSI) at 67.70 is flirting with overbought territory, suggesting momentum is strong but may be stretched. If the 61.8% Fibo gives way, the next target is the 78.6% retracement at $4,687, followed by the cycle high near $4,889.
On the downside, immediate support is at the 61.8% Fibo level ($4,529), then the 200-day SMA ($4,514) and the 50% retracement around $4,417. Deeper support lies at the 38.2% retracement ($4,306.50), the 23.6% level ($4,168), and the structural low near $3,946.
Key takeaways
- Gold reached $4,544, a fresh high since early June, during Asian trading on Friday.
- The rally was driven by a weaker US dollar and reduced expectations of an immediate Federal Reserve rate hike.
- Geopolitical tensions in the Middle East and higher oil prices are supporting the dollar and could limit gold's upside.
- Technically, gold is above the 200-day SMA and the 61.8% Fibonacci retracement; next resistance is at $4,687 and $4,889.
Common questions
What is the 200-day simple moving average and why is it important?
The 200-day simple moving average (SMA) is a widely used technical indicator that smooths price data over the past 200 trading days. A move above it is often interpreted as a bullish signal, indicating that the underlying trend may have turned positive.
What are the next key resistance levels for gold?
Based on recent price action, the first resistance is the 61.8% Fibonacci retracement at $4,529. Above that, the 78.6% retracement at $4,687 comes into play, followed by the cycle high of $4,889.
Gold's current rally reflects a combination of dollar weakness, shifting rate expectations, and ongoing geopolitical uncertainty. The live gold price remains above the 200-day SMA, suggesting the near-term bias is constructive, but traders will be watching for any shift in Fed rhetoric or sudden moves in the dollar that could reverse the trend.