Gold prices attracted fresh selling on Wednesday after failing to gain acceptance above the key $4,100 psychological level in the previous session. However, the precious metal continued to hold above the $4,000 mark during the Asian session as investors balanced weaker U.S. inflation data against renewed inflation concerns fueled by soaring energy prices.
Escalating tensions between the United States and Iran, coupled with the continued closure of the Strait of Hormuz, have kept crude oil prices elevated, reinforcing fears that energy-driven inflation could complicate the Federal Reserve's monetary policy outlook.
Gold Technical Analysis: Downtrend Remains Intact
The XAU/USD pair continues to trade within a descending parallel channel and remains well below its 200-day Simple Moving Average (SMA), suggesting that the broader bearish trend remains intact despite the recent rebound.
Momentum indicators, however, point to a modest improvement in buying interest. The Moving Average Convergence Divergence (MACD) has turned positive and continues to rise, signaling improving bullish momentum. Meanwhile, the Relative Strength Index (RSI) is hovering near the neutral 40.80 level, indicating that buyers have yet to gain full control.
On the upside, the upper boundary of the descending channel around $4,140.69 represents the first major resistance level. A sustained break above this barrier would be needed to invalidate the prevailing bearish outlook.
On the downside, the lower boundary of the descending channel near $3,718.03 remains the next key support. A strong reaction from buyers at this level would be required to signal that bearish momentum is beginning to fade.
Fed Chair Kevin Warsh Reinforces Hawkish Policy Outlook
Federal Reserve Chair Kevin Warsh reaffirmed the central bank's commitment to price stability during his first congressional testimony, signaling that at least one additional interest rate hike before year-end remains a possibility.
His comments largely offset the moderate weakness in the U.S. dollar and became a major factor weighing on non-yielding assets such as gold.
Soft US CPI Fails to Shift Long-Term Fed Expectations
According to the U.S. Bureau of Labor Statistics, headline Consumer Price Index (CPI) fell 0.4% in June, marking the largest monthly decline since April 2020 and exceeding market expectations for a 0.1% decline.
Core CPI, which excludes volatile food and energy prices, remained unchanged during the month, missing forecasts for a 0.3% increase.
On an annual basis, headline inflation slowed to 3.5%, while core inflation eased to 2.6%, both coming in below economists' expectations.
The softer inflation report initially prompted traders to reduce expectations of additional Federal Reserve tightening, sending the U.S. dollar to its lowest level in nearly four weeks.
However, the dollar quickly recovered after Warsh emphasized that the Federal Reserve would not tolerate persistently elevated inflation while highlighting the resilience of the U.S. economy.
Rising Oil Prices Revive Inflation Risks
Crude oil recently climbed to its highest level in nearly a month, increasing concerns that higher energy costs could reignite inflation and strengthen the case for further monetary tightening by the Federal Reserve.
According to the CME FedWatch Tool, investors continue to price in the possibility of another Fed rate hike in either September or December.
At the same time, geopolitical tensions remain elevated after the United States launched another round of airstrikes against Iran, while Tehran responded with attacks on U.S. military assets across the Gulf region. President Donald Trump also warned that the United States would target Iranian bridges and power plants unless Tehran returned to the negotiating table.
Gold Outlook: Focus Shifts to US PPI and Middle East Developments
The combination of a relatively hawkish Federal Reserve, elevated oil prices, and persistent geopolitical risks continues to support the U.S. dollar and suggests that the path of least resistance for gold remains to the downside.
Investors are now awaiting the release of the U.S. Producer Price Index (PPI), along with the second day of Federal Reserve Chair Kevin Warsh's congressional testimony, for fresh clues on the future direction of U.S. monetary policy.
Meanwhile, any further escalation in the Middle East conflict is likely to keep financial markets volatile and create new short-term trading opportunities in the precious metals market.
