Gold (XAUUSD) traded modestly higher in the Asian session on Friday, recovering part of Thursday’s sharp decline to a two-week low. The yellow metal’s uptick came as the US Dollar’s strong rally following hotter-than-expected Producer Price Index (PPI) data lost steam.
Thursday’s PPI report surprised markets with an annualized 3.3% jump in July, up from 2.4% and well above the expected 2.5%. The sharp increase initially drove the US Dollar higher and sent gold prices tumbling by around $45 from the day’s highs. However, the bullish momentum in the greenback faded quickly as traders maintained a firm view that the US Federal Reserve will resume rate cuts in September.
Fed Rate-Cut Bets Cushion Gold Losses
The CME FedWatch Tool shows markets pricing in a 90% probability of a 25-basis-point rate cut in September, with a second cut likely before year-end. Despite the PPI surprise, traders appear convinced that inflationary pressures are not strong enough to derail the Fed’s easing plans, especially given recent signs of slowing labor market growth and softer consumer spending trends.
Lower interest rates tend to reduce the opportunity cost of holding non-yielding assets like gold, making the metal more attractive to investors. This expectation has kept gold from extending its recent losses and allowed prices to stabilize above key technical support.
Risk-On Sentiment Limits Upside
While the Fed outlook supports gold, the broader market environment is currently less favorable for safe-haven demand. A three-month extension of the US-China tariff truce has eased fears of escalating trade tensions between the world’s two largest economies. In addition, optimism surrounding Friday’s US-Russia summit — with hopes of progress toward ending the war in Ukraine has further bolstered global risk sentiment.
Equity markets across Asia and Europe posted modest gains, reflecting investor preference for risk assets over defensive holdings like gold. This shift in sentiment is capping the upside potential for the yellow metal, even as the Dollar struggles to maintain momentum.
US Data in Focus for Friday
Attention now turns to a series of key US economic reports later in the day. July Retail Sales figures will provide fresh insight into consumer demand, while the Empire State Manufacturing Index will shed light on regional factory activity. The University of Michigan’s Consumer Sentiment and Inflation Expectations Index will also be closely watched for signs of shifting household outlooks.
Stronger-than-expected data could give the Dollar a lift and weigh on gold, while weaker prints may reinforce expectations for imminent Fed rate cuts, lending further support to the precious metal heading into the weekend.
Weekly Outlook: First Loss in Three Weeks?
Despite Friday’s rebound, gold remains on track to post its first weekly decline in three weeks. The metal’s inability to stage a strong recovery following Thursday’s drop suggests that the path of least resistance remains to the downside in the short term. Any rally without solid fundamental backing risks fizzling quickly, especially with risk sentiment improving and technical momentum indicators turning bearish.
Technical Analysis: Key Levels to Watch
Gold is currently trading near $2,360, with immediate support at $2,345 the level that cushioned Thursday’s drop. A break below this zone could open the door for a deeper correction toward $2,325 and $2,300.
On the upside, initial resistance is seen at $2,375, followed by the $2,390–$2,395 area, which aligns with the 20-day moving average. A decisive move above this zone would be needed to signal that the short-term bearish bias is weakening. The Relative Strength Index (RSI) remains in neutral territory, suggesting scope for volatility in either direction once US data hits.
Conclusion
Gold’s modest gains on Friday reflect a delicate balance between Fed-driven support and risk-on headwinds. While rate-cut expectations continue to cushion the downside, improving global sentiment and the prospect of upbeat US data could limit further upside in the near term. Traders should watch upcoming US economic releases closely, as they will likely determine whether gold can extend its recove Pry or faces renewed selling pressure into next week.
