Gold (XAU/USD) steadied on Friday after a sharp decline of nearly 2% the previous day, with the precious metal trading around $4,060 after reaching an intraday low of $4,022 [1]. The recent drop was attributed to surging oil prices, which fueled expectations that the Federal Reserve may need to raise interest rates amid a worsening inflation outlook [1]. West Texas Intermediate (WTI) oil rallied 6% on Thursday, briefly climbing above $92.00, and was trading around $88.50 at the time of reporting, near its highest level in over a month [1].
A pullback in oil prices led to a slight decrease in the US Dollar and US Treasury yields, providing some support to gold, which typically moves inversely to both [1]. However, the upside for gold remains limited as market sentiment is dominated by the Federal Reserve's hawkish stance and ongoing geopolitical risks in the Middle East [1]. According to the CME FedWatch Tool, markets now see a 78% chance of a rate hike in September, while the Fed is widely expected to keep interest rates unchanged at its July 28-29 meeting [1].
Geopolitical tensions escalated as the US military completed its 13th consecutive night of strikes on Iran, and US President Donald Trump stated he was “considering a massive attack” and was “close to making a decision.” Iran has also targeted US military bases in Jordan and Bahrain [1]. The conflict now threatens two major energy-shipping routes, the Strait of Hormuz and Bab el-Mandeb, raising the risk of prolonged supply disruption and keeping oil prices elevated [1].
Despite these ongoing risks, analysts at ING noted that gold has struggled to attract meaningful safe-haven demand since the conflict began, with investor attention shifting toward the inflationary implications of higher oil prices and the prospect of higher-for-longer interest rates [1]. Technically, XAU/USD maintains a bearish near-term tone, holding below the Bollinger middle band (20-period SMA) at $4,068 and well below the 100-day SMA near $4,480. The Relative Strength Index (RSI) remains below 50, and an elevated Average Directional Index above 35 suggests the downside trend still has strength despite recent consolidation [1].
Gold continues to hold above the psychological $4,000 mark, remaining range-bound between $4,000 and $4,200 for a fifth consecutive week [1]. Traders are awaiting the preliminary S&P Global Purchasing Managers Index (PMI) data, which could provide further direction during American trading hours [1].
CONCLUSION
Gold remains under pressure from expectations of higher US interest rates and persistent geopolitical tensions, but continues to find support above the $4,000 level. Despite elevated oil prices and ongoing Middle East risks, safe-haven demand for gold has been limited, with the market's focus on inflation and Fed policy. The near-term outlook for gold remains bearish, with traders closely watching upcoming US economic data for further cues.