Gold (XAU/USD) extended its modest recovery on Wednesday, marking its second consecutive day of gains after bouncing from the $3,331 level a one and-a-half-week low. The latest US Consumer Price Index (CPI) data for July came in broadly in line with market expectations, reinforcing speculation that the Federal Reserve could begin cutting interest rates as early as September. This dovish tilt has placed the US Dollar under sustained selling pressure, providing a tailwind for the non-yielding yellow metal.
While the immediate bias favors gold buyers, the rally lacks strong conviction amid a backdrop of improved risk appetite. The extension of the US-China trade truce and an upcoming US-Russia summit aimed at resolving the Ukraine conflict have boosted global market sentiment a factor that often works against safe-haven demand.
US CPI Data Keeps September Rate Cut Hopes Alive
The US Bureau of Labor Statistics (BLS) reported that headline inflation held steady at 2.7% YoY in July, with the monthly rate rising by 0.2%, matching consensus estimates. Core CPI, which excludes volatile food and energy prices, rose from 2.9% to 3.1% YoY, slightly exceeding expectations, while the monthly core CPI came in at 0.3%.
The numbers suggest inflationary pressures remain contained enough to allow the Fed to ease policy without fear of reigniting price growth. In addition, signs of labor market softening — with job openings declining and wage growth slowing add to the case for a policy shift.
According to the CME FedWatch Tool, markets are now pricing in two or more rate cuts by year-end, with the probability of a September move rising notably after Tuesday’s CPI release. This has kept the US Dollar pinned near a two-week low, directly benefiting gold prices.
Geopolitical Developments Shift Risk Appetite
Monday saw US President Donald Trump extend the tariff truce with China for another three months, providing breathing room in the ongoing trade negotiations between the world’s two largest economies. This eased fears of an escalation into a full-blown trade war, which had previously supported gold.
Meanwhile, focus is turning to the US-Russia summit scheduled for Friday, which aims to create a framework for ending the Ukraine conflict. Even a modest diplomatic breakthrough could significantly reduce geopolitical risk premiums in global markets potentially capping gold’s upside in the near term.
Equity Markets Hit Record Highs, Dimming Gold Shine
Improved investor sentiment has propelled equity benchmarks to new highs. On Tuesday, both the S&P 500 and Nasdaq closed at record levels, while Japan’s Nikkei 225 breached the 43,000 mark for the first time in history on Wednesday. Such strong performance in risk assets typically draws capital away from safe-haven holdings like gold, limiting its upward momentum despite a weaker USD.
Market Focus Turns to Fed Speakers and US Data
With no major US economic releases scheduled for Wednesday, traders are eyeing Federal Open Market Committee (FOMC) members’ speeches for clues on policy direction. Later in the week, attention will shift to the US Producer Price Index (PPI) on Thursday and the University of Michigan Consumer Sentiment Index on Friday. These could provide fresh volatility for both USD and gold.
Technical Outlook: Gold Bulls Face Key Resistance
From a technical perspective, XAUUSD remains supported above the $3,330–$3,335 zone, which represents a near-term demand area. A sustained move above $3,355–$3,360 could open the door for a retest of the $3,375–$3,380 region. Beyond that, the $3,400 psychological level becomes the next upside target.
On the downside, failure to hold above $3,330 may invite fresh selling pressure, exposing the $3,310–$3,305 area. Below this, the next significant support lies near $3,285.
Key Technical Levels:
Support: $3,335 – $3,330 – $3,310
Resistance: $3,360 – $3,375 – $3,400
Fed Policy Path Remains Central to Gold’s Outlook
The Fed’s next moves will be the dominant driver of gold in the coming months. With inflation stable, wage growth moderating, and consumer spending showing early signs of fatigue, policymakers may see little reason to delay monetary easing. However, if incoming data — particularly on inflation and employment — surprises to the upside, rate cut bets could be repriced, boosting USD and pressuring gold.
Broader Macro Risks Still Favor Holding Gold
While the current environment of risk-on sentiment is limiting gold’s rally, several lingering risks could keep it supported:
Global Debt Levels: Elevated sovereign and corporate debt could heighten systemic risks if growth slows further.
Geopolitical Flashpoints: Beyond Ukraine, tensions in the Middle East and South China Sea remain potential catalysts for safe-haven flows.
US Fiscal Position: Rising federal deficits and debt-servicing costs could weigh on the USD’s long-term appeal.
Conclusion
Gold’s modest gains this week underscore the delicate balance between Fed rate cut optimism and waning safe-haven demand. While a softer USD and easing inflation pressures support the metal, improved global sentiment and record equity market highs are acting as a brake on its advance.
For traders, the near-term focus will be on Fed commentary and upcoming US macro data to confirm whether the September rate cut narrative remains intact. A decisive break above $3,360 could signal the start of a fresh bullish leg, while a drop below $3,330 would shift momentum back toward sellers.
