Gold Price Forecast: Rally hits pause near $4,440 with US CPI in focus
- Gold price retreats from the two-month high of $4,435.40 as oil prices rise.
- Heightened Hormuz reopening uncertainty has prompted oil prices
- Investors shift their focus to the US CPI data for July.
Gold price (XAU/USD) trades 0.26% lower at around $4,380 during the European trading session on Tuesday. The precious metal comes off the two-month high of $4,435 posted earlier in the day, as oil prices have rallied further due to escalated uncertainty surrounding the reopening of the Strait of Hormuz, a vital passage to almost 20% of global energy supply.
Brent extends gains as US-Iran tensions keep Strait of Hormuz in focus
Analysts at Danske Bank highlight that in commodities, “Brent crude climbed to USD 87/bbl as hopes faded once again for a near-term resolution to the US-Iran conflict and the reopening of the Strait of Hormuz.” They note that negotiations over the key shipping route “have stalled, with President Trump's latest demands on war compensation adding further uncertainty to the prospect of a deal,” leaving the oil complex firmly driven by geopolitical risk.
Higher oil prices prompt global inflation expectations, a scenario that accelerates fears of interest rate hikes by global central banks. Such a case bodes poorly for non-yielding assets, like Gold.
Meanwhile, financial markets await the United States (US) Consumer Price Index (CPI) data for July, which will be released on Wednesday. The inflation data is expected to significantly influence Federal Reserve (Fed) interest rate expectations, as Chairman Kevin Warsh said in his July monetary policy press conference that officials are committed to bringing inflation down to the 2% target.
ING strategists point out that “US rates ended last week with a dovish aftertaste on the back of poor payroll numbers, but the CPI figure this week should be more instrumental.” With “only two more CPI readings” before the September Fed meeting and “around 40% of a hike priced in,” they argue that markets still need to “make up their minds about the next Fed move.” ING adds that “a benign CPI could help ease fears about Fed Chair Kevin Warsh turning the central bank overly dovish, which should also bring longer rates lower too,” reinforcing the idea that the inflation data will be pivotal in shaping both policy expectations and the rates curve.
Gold Technical Analysis
XAU/USD trades at around $4,377.89. The metal holds a constructive bullish bias as it remains above the 20-day exponential moving average (EMA) at $4,174.76, keeping the short-term trend supported.
The Relative Strength Index (RSI) at 66.40 is approaching overbought territory, suggesting firm upside momentum but also hinting that the latest advance could be vulnerable to a pause or shallow correction.
On the downside, immediate support is seen at the 20-day EMA around $4,174.76, which coincides with the July high that was the prior resistance zone. Looking up, the yellow metal needs a decisive break above the intraday high at $4,435.40 to extend the rally towards the May 29 high at $4,595.34.
(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.