Gold prices (XAU/USD) climbed to nearly $4,415 during the early Asian session on Tuesday, extending their upward momentum as expectations for further US Federal Reserve rate hikes diminished [1]. The rally in gold was fueled by an unexpected decline in US Nonfarm Payrolls (NFP) for July and modest consumer price inflation data released last week, both of which have reduced the likelihood of a US interest rate increase at the next Fed policy meeting [1]. As a result, the probability of a Fed rate hike has dropped to 35%, down from 47% a month earlier, according to the CME FedWatch Tool [1].
This shift in rate expectations has put selling pressure on the US Dollar, making gold more attractive to buyers [1]. However, ongoing tensions in the Middle East, including renewed fighting in Lebanon and US President Donald Trump's statement that he is not interested in extending the expiring agreement with Iran, could potentially reignite oil-driven inflation concerns and impact gold prices [1]. James Steel, chief precious metals analyst at HSBC, commented, "If oil doesn’t steal the show again, if the situation in the Middle East does not erupt and oil prices spike, then it looks as if the path of least resistance for gold is higher" [1].
From a technical perspective, gold maintains a bullish near-term outlook, trading above both the 100-day simple moving average (SMA) and the Bollinger middle band, with the Relative Strength Index (RSI) at 65.37 indicating strong upside momentum but also suggesting the potential for consolidation after the recent advance [1]. Immediate resistance is seen near the upper Bollinger band at $4,485, while initial support lies just below the market at the 100-day SMA around $4,385 [1].
In related macroeconomic news, China’s retail sales growth slowed to 0.6% year-over-year in July, down from 1.0% in June and well below market expectations of 1.5%, highlighting ongoing weakness in consumer demand despite policy efforts to boost spending [1]. Year-to-date, retail sales in China have grown by just 1.2% year-over-year, according to ING [1].
CONCLUSION
Gold's rally above $4,400 reflects waning expectations for a US Fed rate hike, supported by softer US economic data and a weaker dollar. While geopolitical risks in the Middle East and sluggish Chinese retail sales add uncertainty, technical indicators suggest gold remains in a bullish phase. Market participants are likely to monitor upcoming US data and geopolitical developments for further direction.