Gold (XAU/USD) traded with a negative bias during Wednesday’s Asian session, holding above the key $4,000 psychological support while remaining under persistent selling pressure. The experts at Drexeldev take a closer look at this topic throughout the article below.
The initial bullish reaction to weaker US Consumer Price Index (CPI) data faded rapidly as markets shifted focus toward higher energy prices, Federal Reserve policy expectations, and escalating geopolitical risks.
Although the US Dollar (USD) retreated to a nearly four-week low, the decline failed to generate sustained demand for the non-yielding precious metal.
Inflation Data Reduces Dollar Strength but Fails to Lift Gold
The latest report from the US Bureau of Labor Statistics showed that headline CPI declined 0.4% month-over-month in June, significantly below the expected 0.1% decline and representing the largest monthly contraction since April 2020.
Meanwhile, Core CPI, excluding food and energy, remained unchanged at 0.0% MoM, compared with the market consensus of 0.3%.
On an annual basis, headline inflation eased to 3.5% YoY, while Core CPI slowed to 2.6% YoY, both undershooting consensus forecasts. The weaker inflation figures prompted markets to reduce expectations for aggressive monetary tightening, driving the US Dollar Index (DXY) toward its lowest level in almost one month.
However, the impact on Gold proved temporary after Federal Reserve Chair Kevin Warsh reaffirmed the central bank’s commitment to price stability and emphasized the resilience of the US economy. The remarks reinforced expectations that restrictive monetary policy could remain in place throughout 2026, limiting upside potential for bullion.
Higher Oil Prices Reinforce Fed Tightening Expectations
A significant factor weighing on Gold is the continued increase in crude oil prices, which have climbed to nearly a one-month high amid disruptions to global energy markets. The closure of the Strait of Hormuz, combined with escalating US-Iran military tensions, has intensified concerns over global energy supply, increasing the probability of renewed cost-push inflation.
Higher oil prices directly influence transportation, manufacturing, and consumer prices, creating additional inflationary pressure across the broader economy. This strengthens the case for maintaining higher interest rates for longer.
According to the CME FedWatch Tool, markets continue to assign meaningful probabilities to an additional 25-basis-point Federal Reserve rate increase during either the September or December FOMC meeting.
Elevated Treasury yields, together with expectations for prolonged restrictive monetary policy, continue to reduce the relative attractiveness of non-interest-bearing assets such as Gold.
Safe-Haven Demand Continues to Favor the US Dollar
Although escalating geopolitical tensions traditionally support safe-haven assets, recent developments have generated stronger demand for the US Dollar than for Gold.
Additional military operations involving the United States and Iran, along with threats of further strikes on critical infrastructure, have increased global uncertainty while simultaneously boosting demand for USD liquidity.
This divergence has prevented XAU/USD from benefiting fully from geopolitical risk. Instead, investors continue to favor the reserve currency, particularly as expectations for tighter Federal Reserve policy remain intact.
Technical Structure Remains Firmly Bearish
From a technical perspective, XAU/USD continues to trade within a descending parallel channel, maintaining a clearly defined bearish market structure. Price action remains below the 200-day Simple Moving Average (SMA), confirming that the broader trend continues to favor sellers.
Momentum indicators present a mixed outlook. The Moving Average Convergence Divergence (MACD) has crossed into positive territory, indicating improving short-term momentum, while the Relative Strength Index (RSI) remains close to 40.80, reflecting weak buying pressure and the absence of overbought conditions.
Immediate resistance is located near $4,140.69, corresponding to the upper boundary of the descending channel. A sustained break above this level would be required to invalidate the prevailing bearish structure and expose higher resistance zones.
On the downside, the lower boundary of the channel near $3,718.03 represents the next critical support level. A decisive breakdown below this area would reinforce the existing downtrend and increase the probability of an accelerated decline.
Focus Turns to PPI and Federal Reserve Guidance
Market participants now await the release of the US Producer Price Index (PPI), which will provide additional insight into upstream inflationary pressures and the broader pricing environment.
Stronger-than-expected PPI data would reinforce expectations for additional Federal Reserve tightening, while softer figures could further weaken the USD and provide temporary support for Gold.
Investors will also monitor the second day of Federal Reserve Chair Kevin Warsh’s congressional testimony for further signals regarding interest rates, inflation, economic growth, and future monetary policy.
At the same time, developments in the Middle East and movements in crude oil prices are expected to remain key drivers of market volatility.
Overall, the combination of elevated oil prices, persistent inflation risks, hawkish Federal Reserve expectations, and stronger safe-haven demand for the US Dollar continues to favor a bearish near-term outlook for Gold (XAU/USD) despite the recent weakness in the USD.
