Gold retreats as the US Dollar regains ground following Thursday's sharp decline.
Elevated energy prices linked to the Middle East war keep inflation concerns and hawkish Fed expectations in focus.
Technical indicators suggest stabilization, with XAU/USD holding above $4,000 despite remaining below key moving averages.
Gold (XAU/USD) edges lower on Friday as the US Dollar (USD) stabilizes following the previous day’s sharp sell-off, while hawkish Federal Reserve (Fed) expectations remain a key headwind for the non-yielding metal.
At the time of writing, XAU/USD trades around $4,053, down 1.22% on the day after struggling to sustain gains above $4,100.
The US Dollar Index (DXY) slumped to a six-week low on Thursday amid suspected foreign exchange intervention by Tokyo to support the Japanese Yen (JPY). The DXY, which tracks the Greenback’s value against a basket of six major currencies, trades around 100.20, up 0.21% on the day.
The Greenback attracts fresh bids as the war in the Middle East supports demand, while the resulting rise in energy prices heightens inflation concerns and reinforces expectations that the Fed may raise interest rates. Nevertheless, the index remains on track to end July in negative territory.
Meanwhile, Gold looks set to snap a four-month losing streak as buyers continue to defend the psychological $4,000 level. However, the prospect of higher US interest rates is keeping US Treasury yields elevated and limiting the metal’s upside.
The Fed left interest rates unchanged within the 3.50%-3.75% range on Wednesday, with three policymakers voting for an immediate rate hike. Although Fed Chair Kevin Warsh stopped short of offering clear forward guidance, he reiterated the central bank’s commitment to bringing inflation under control.
According to the CME FedWatch Tool, traders currently price in around a 66% probability of a 25-basis-point rate hike in September.
Traders now await the final University of Michigan Consumer Sentiment and Consumer Expectations data, alongside the one-year and five-year Consumer Inflation Expectations, due later on Friday during American trading hours.
In the near term, XAU/USD is expected to remain range-bound as traders assess developments in the Middle East and the Fed’s interest-rate outlook, while technical indicators point to signs of stabilization.
Technical analysis: XAU/USD recovery remains capped below the 21-day SMA
On the daily chart, XAU/USD shows signs of stabilization after repeatedly finding support around the psychological $4,000 mark, while holding beneath a cluster of key moving averages.
The Relative Strength Index (RSI) near 46 sits just below the neutral 50 level, pointing to subdued momentum rather than strong selling pressure. Meanwhile, the Average Directional Index (ADX) around 28 suggests that the earlier downtrend is losing strength
On the downside, the $4,000 level provides immediate support, with a sustained break below this area exposing the next cushion near $3,850. On the upside, initial resistance is seen at the 21-day Simple Moving Average (SMA) at $4,072.
A decisive move above this level could open the door towards the 50-day SMA at $4,185, while the 100-day SMA at $4,426 represents a stronger barrier.
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