Gold Under Pressure as Oil Inflation Fuels Fed Hike Bets

Key Moments

Fundamental Drivers

Gold (XAU/USD) faces renewed selling interest after being rejected above the $4,100 area in the prior session, keeping a generally offered tone into Wednesday’s European trade. The metal struggles to extend gains despite softer US Consumer Price Index (CPI) figures, as market participants continue to focus on the risk of energy-driven inflation.

Escalating frictions between the United States and Iran, alongside the closure of the Strait of Hormuz, are helping to keep crude oil prices elevated. This backdrop sustains concerns that higher energy costs could feed back into broader inflation, preserving the risk of further policy tightening from the US Federal Reserve and undermining non-yielding assets such as gold.

Comments from Fed Chair Kevin Warsh in his first congressional testimony reinforce this dynamic. His firm stance on maintaining price stability leaves open the prospect of at least one additional rate increase by the end of the year, dampening the appeal of bullion. Even so, a weaker US Dollar allows XAU/USD to hold above the key $4,000 psychological level and above the nearly two-week trough seen on Tuesday.

US Inflation Data and Fed Response

The US Bureau of Labor Statistics reported that the headline CPI fell by 0.4% in June, the largest monthly drop since April 2020 and weaker than the expected 0.1% decline. The core CPI measure, excluding food and energy, was unchanged on the month, missing the 0.3% consensus forecast.

On a year-over-year basis, both headline and core inflation slowed to 3.5% and 2.6%, respectively, undershooting expectations as well. These figures initially prompted traders to scale back expectations for additional Fed tightening and pushed the USD to a nearly four-week low.

However, that initial reaction faded after Chair Warsh told lawmakers that the Fed has “no tolerance for persistently high inflation” while also emphasizing the robustness of the US economy. His remarks supported market pricing for further policy firming and tempered the downside move in the Dollar, limiting gold’s ability to capitalize on the softer CPI print.

Oil Prices, Geopolitics, and Policy Expectations

The recent advance in crude oil toward a near one-month high is viewed as a direct upside risk to inflation, lending further credibility to the case for additional Fed tightening. According to the CME Group’s FedWatch Tool, market participants are assigning a probability that the central bank will raise rates again, either in September or December.

At the same time, persistent geopolitical risks emanating from the Middle East are discouraging aggressive bearish positioning against the US currency. The US military has conducted another round of airstrikes against Iran, and Iran has responded with attacks on US military assets in Gulf countries. In addition, US President Donald Trump stated that the United States would target Iranian bridges and power plants unless Iran returns to negotiations.

This combination of elevated energy prices, hawkish Fed rhetoric, and geopolitical uncertainty bolsters the USD’s safe-haven status. Taken together, these factors suggest that the risk for gold prices remains skewed to the downside, at least in the near term.

Upcoming Data and Event Risks

Market participants are now turning their attention to the release of the US Producer Price Index (PPI). That data, alongside the second day of Fed Chair Warsh’s congressional testimony, is expected to be closely watched for fresh signals on the policy outlook and the Dollar’s trajectory.

In parallel, developments around the Middle East conflict are likely to remain a key driver of cross-asset volatility. Shifts in the geopolitical landscape may continue to generate short-term trading opportunities in gold, particularly as investors balance safe-haven flows against interest-rate and currency dynamics.

Technical Landscape for XAU/USD

On the daily chart, XAU/USD remains confined within a downward-sloping parallel channel and trades well below the 200-day Simple Moving Average (SMA). This configuration keeps the broader bias capped despite the recent recovery attempt.

The Moving Average Convergence Divergence (MACD) indicator has turned positive and is gradually firming, pointing to improving, though still limited, upside momentum. Meanwhile, the Relative Strength Index (RSI) hovers near a neutral 40.80 reading, indicating neither extreme overbought nor oversold conditions.