Gold Pauses Near $4,600 as Strong Dollar Checks Rally

Key Moments:

Gold Holds Above Weekly Low Ahead of Fed Chair Warsh

Gold (XAU/USD) lost early upward momentum and was last changing hands slightly above the $4,600 level heading into the European session on Thursday. The metal is still trading above the weekly trough set on Wednesday, as market participants step back ahead of US Federal Reserve Chair Kevin Warsh’s appearance at the Jackson Hole Symposium on Friday. His remarks are expected to be pivotal for shaping expectations on the Fed’s next policy steps, which will in turn influence the US Dollar and broader appetite for non-yielding gold.

US Inflation Data Reinforces Rate-Hike Expectations

The latest US inflation figures released on Wednesday have strengthened the case for at least one additional Fed rate increase by year-end. Data from the Commerce Department showed that the US Personal Consumption Expenditures (PCE) Price Index held at 3.7% year-on-year in July, unchanged from the prior reading and above forecasts. The core PCE measure, which strips out food and energy, was steady at 3.3%, matching expectations. The combination of a headline reading above consensus and a stable core level underscores persistent inflation pressures and is likely to keep the debate alive over whether policymakers should tighten further or maintain current rates.

Yields Stay Subdued as Treasury Buybacks Offset Hawkish Fed Bets

Despite the firmer outlook for Fed policy, US government bond yields remain under pressure, weighed down by the US Treasury’s buyback strategy. At the same time, improving sentiment around a possible US-Iran peace arrangement and prospects for reopening the Strait of Hormuz are limiting the US Dollar’s upside and providing some countervailing support for bullion.

Media reports indicate that the US and Iran have reached a new ceasefire agreement that could be made public in the coming days. In addition, Iran’s Deputy Foreign Minister Kazem Gharibabadi said on Tuesday that Tehran and Oman have agreed on a temporary maritime corridor for vessels transiting the waterway.

Gharibabadi cautioned, however, that a full reopening of the Strait will depend on the US delivering on its obligations under an interim peace deal signed in June. The lingering uncertainty keeps a geopolitical risk premium in play, supporting crude oil prices and the safe-haven US Dollar. This backdrop may, in turn, restrict the upside for gold prices in the near term. Against this mix of factors, many investors are seeking confirmation through a sustained move above $4,700 before adding to bullish XAU/USD positions that have been building since the start of the month.

Technical Picture: Support Cluster Intact, Upside Seen as Stretched

On the daily chart, gold maintains a constructive short-term bias as long as it trades above the $4,525-$4,515 band, which combines the 200-day Simple Moving Average (SMA) with the 38.2% Fibonacci retracement of the March-June downswing. The Relative Strength Index (RSI) stands at 68.21, hovering near overbought territory, while the Moving Average Convergence Divergence (MACD) remains in positive territory. Together, these signals point to ongoing upside momentum, although conditions appear increasingly stretched.

Given this setup, technicians are looking for a clear break above the 50% retracement zone and the $4,700 barrier to validate scope for additional gains. A successful push through that area could open the path toward the 61.8% retracement at $4,861.14. Beyond that, the 78.6% retracement at $5,107.11 and the cycle high region near $5,420.42 define a broader bullish target range if buyers extend the advance.

On the downside, the $4,525-$4,515 confluence area is expected to act as initial support. A more pronounced correction below that zone would bring the 23.6% retracement at $4,301.87 into focus, followed by a more substantial support base around the cycle low at $3,956.35.

Key Technical Levels for XAU/USD

Background: Gold’s Role and Market Relationships

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.