Gold price gained momentum to trade near $4,395 during early Asian trading hours on Monday, extending its rally as weakening US economic data dampened expectations for Federal Reserve interest rate increases. The precious metal's advance reflects cooling inflation pressures and reduced odds for a September Fed rate hike, despite persistent geopolitical tensions in the Middle East. The rally was supported by softer-than-expected US retail sales data released by the US Census Bureau on Friday.
The data showed that US Retail Sales declined by 0.6 percent month-on-month in July, coming in below the 0.1 percent increase that was anticipated. This followed a revised increase of 0.2 percent in June. On an annual basis, retail sales rose 5.0 percent in July, down from the previously revised 6.8 percent gain recorded in June.
The retail sales weakness added to evidence that inflationary pressures are gradually easing following recent Consumer Price Index and Producer Price Index reports. This moderation in inflation expectations has weighed on the US Dollar, which in turn supports gold prices as the commodity is denominated in dollars. According to the CME FedWatch tool, money markets have priced in approximately a 33.1 percent probability of a September Fed rate hike, down significantly from earlier expectations.
Lower interest rate expectations are constructive for gold, as reduced yields on alternative investments increase the appeal of holding non-yielding bullion. Analysts at Commerzbank noted that the backdrop for gold remains supportive given expectations that the Fed will not raise interest rates, suggesting further upside potential for the precious metal. However, Commerzbank cautioned that gains may not come in a straight line, pointing to recent price weakness to the $4,320 level as evidence of continued volatility.
Commerzbank also highlighted renewed buying interest from exchange-traded fund investors as a positive factor supporting gold's medium-term outlook. This ETF demand represents fresh capital inflows into the precious metal market. Geopolitical risks in the Middle East continue to inject uncertainty into markets.
Iran's Deputy Foreign Minister Kazem Gharibabadi called on the United States to "accept the reality of defeat and stop indulging in delusions" following statements from US President Donald Trump regarding the Strait of Hormuz. Iran's Foreign Minister Abbas Araghchi stated on Friday that there were no ongoing negotiations between Tehran and Washington, adding that the US must agree to Iran's conditions for shipping to resume through the strategic waterway. From a technical perspective, gold maintains a constructive near-term bias.
The XAU/USD pair is trading above the 100-day simple moving average and comfortably above the 20-day Bollinger middle band. The Relative Strength Index reading of 64.09 suggests bullish momentum without being overbought, indicating potential for further upside exploration within the prevailing range. Initial resistance is aligned with the upper Bollinger band at $4,480, where profit-taking is likely to emerge.
The immediate floor is defined by the 100-day simple moving average at $4,385.85, with deeper corrective support appearing around the Bollinger middle band near $4,195. The interplay between supportive monetary policy expectations and geopolitical risks will likely continue to drive gold price movements in the near term. While Fed rate cut expectations support higher gold prices, Middle East tensions could provide some upside limitation for the precious metal.
Source: fxstreet.com