Gold Buyers Hesitate Near $4,350 as Iran Risks and Fed Rate Hike Bets Support USD
Gold (XAU/USD) reversed an early decline on Monday and climbed toward the upper end of its daily range, trading near the $4,350 area ahead of the European session. However, the precious metal remained below the highest level since June 17, reached on Friday following the release of the latest US Nonfarm Payrolls (NFP) report.
The US monthly employment report showed that the economy unexpectedly lost 23,000 jobs in July, while the previous month's figure was sharply revised lower to a 20,000-job decline from an initial 57,000 increase. The weaker labor-market data reinforced signs of slowing economic activity and reduced the Federal Reserve's case for another interest-rate hike.
The softer employment figures weighed on the US Dollar (USD) and provided support for non-yielding gold. Nevertheless, persistent geopolitical risks and renewed expectations of tighter US monetary policy are limiting the precious metal's upside potential.
XAU/USD Technical Outlook Remains Cautious
The broader technical bias for XAU/USD remains relatively unchanged, with gold still trading below the 100-day Simple Moving Average (SMA) near $4,390 and the 200-day SMA around $4,496.
Meanwhile, the Moving Average Convergence Divergence (MACD) indicator remains positive, while the Relative Strength Index (RSI) holds in bullish territory without reaching overbought conditions, currently around 64.
Gold has also reclaimed the 38.2% Fibonacci retracement level of the April-June decline near $4,303.27. However, higher Fibonacci retracement levels and longer-term moving averages remain overhead, suggesting that the latest recovery could remain vulnerable to a reversal.
On the upside, immediate resistance is located around the 100-day SMA near $4,390, followed by the 50% Fibonacci retracement at approximately $4,414. A sustained daily close above these levels could pave the way toward the 200-day SMA around $4,496 and the 61.8% Fibonacci retracement near $4,525.
Further gains could expose the 78.6% Fibonacci retracement near $4,683, followed by the latest cycle high around $4,884.
On the downside, initial support is seen at the 38.2% Fibonacci retracement near $4,303, followed by the 23.6% level around $4,166. A deeper correction could bring the $3,944.21 support zone back into focus if sellers regain control.
Iran Tensions Support the US Dollar
The initial market reaction to weaker US employment data proved short-lived as uncertainty surrounding the Middle East crisis and the reopening of the Strait of Hormuz provided some safe-haven demand for the US Dollar.
Iran reiterated its conditions for the full reopening of the strategically important waterway, including an end to the US naval blockade, the lifting of sanctions, and compensation for wartime damage.
Tehran has also rejected direct talks with Washington, citing alleged violations of the temporary ceasefire agreement reached in June. The ongoing uncertainty keeps geopolitical risk premiums elevated and supports the USD, potentially limiting further gains in gold.
Oil Prices and Fed Expectations Remain Key Drivers
Meanwhile, the US-Iran standoff has provided support for crude oil prices. Investors remain concerned that higher energy costs could reignite inflationary pressures and force major central banks to maintain a more hawkish monetary-policy stance.
The CME Group FedWatch Tool also indicates that traders continue to see a meaningful probability of the Federal Reserve raising borrowing costs later this year. Such expectations can keep US Treasury yields elevated, supporting the US Dollar and creating additional headwinds for gold.
However, traders may prefer to remain cautious ahead of the latest US inflation figures due later this week.
According to TD Securities, the risk of a rate hike remains present, although upcoming inflation data could significantly alter market expectations. The firm expects headline and core Consumer Price Index (CPI) readings of approximately 0.15% and 0.20% month-over-month, respectively, which could further reduce expectations for a Federal Reserve rate hike.
TD Securities also noted that much of the recent increase in interest rates has been driven by expectations surrounding Fed policy. If rate-hike expectations fade, Treasury yields could move lower, potentially weakening the US Dollar and providing renewed support for gold.
Gold Price Outlook
Gold remains caught between opposing forces. A weaker US labor market and the possibility of lower interest rates are supportive for XAU/USD, while geopolitical uncertainty, higher oil prices, elevated Treasury yields, and lingering Fed rate-hike expectations are limiting the upside.
The upcoming US CPI report will therefore be a key catalyst for gold prices. A softer inflation reading could strengthen expectations for a more dovish Federal Reserve and help XAU/USD challenge the $4,390–$4,414 resistance zone. Conversely, stronger-than-expected inflation could boost the US Dollar and Treasury yields, potentially sending gold toward its key support levels.