Gold (XAU/USD) has struggled to extend a modest rebound above the $4,000 psychological level and is still near its monthly low, with downside pressure reinforced by a firmer US Dollar (USD) and higher oil. Crude has risen more than 10% this week as renewed US-Iran clashes raised supply risks, while fears of energy-driven inflation have supported expectations that the Federal Reserve (Fed) will keep rates higher for longer. Tensions have intensified around the Strait of Hormuz, and Iran has asked Yemen’s Houthis to be ready to close the Red Sea oil route, helping crude hold gains at a one-month high. US data added to the policy outlook: initial jobless claims fell to 208 K for the week ended 11 July, and the Philadelphia Fed Manufacturing Index jumped from 10.3 to 41.4 in July, the strongest since November 2021, with price indicators still pointing to rising prices. The CME Group FedWatch Tool shows markets pricing a near-75% chance of a 25-basis-point rate rise by December.
Technically, XAU/USD remains in a downward-sloping channel and below the 200-day Simple Moving Average (SMA), keeping the corrective bias intact even as MACD has edged positive and RSI sits near 40. Resistance is seen near $4,082.74 at the channel top, and then around $4,495.44 at the 200-day SMA, while support sits near $3,661.05 at the channel floor; a break below that level would reinforce the bearish structure. Friday’s US releases include Building Permits, Housing Starts and Industrial Production, alongside the preliminary University of Michigan Consumer Sentiment Index and Inflation Expectations, with further Fed communication also in focus.
Geopolitical Risks and Fed Policy Outlook
We should prepare for continued downward pressure on gold as rising crude oil prices and geopolitical risks drive inflation expectations. The Strait of Hormuz, which handles roughly 20 million barrels of oil per day or 20% of global liquid petroleum consumption, remains a volatile flashpoint. With oil prices surging over 10% this week, we expect the Federal Reserve to keep interest rates higher for longer to combat energy-driven inflation.
As derivative traders, we must recognize that a stronger US Dollar will continue to cap any potential gains for non-yielding bullion. The latest US labor data shows extreme resilience, with weekly jobless claims dropping to 208,000, while the Philadelphia Fed Manufacturing Index surged to 41.4 in July. With the CME FedWatch Tool pricing in a 75% chance of another rate hike by December, we expect the dollar’s upward momentum to persist.
Technical Levels and Trading Strategy
From a technical perspective, gold is trading below its key 200-day Simple Moving Average, indicating that we should look to sell into short-term rallies. We see immediate upside resistance capped near the channel top of $4,082.74, making it an ideal area to establish short positions. A decisive break below the key support level at $3,661.05 could open the doors for much deeper losses in the coming weeks.
