Gold Pulls Back From Two-Month High as Oil Prices Keep Inflation Risks Alive 

Gold prices are pulling back from a two-month high as the recent rally loses some momentum. 

Prices rose to 4,450 in the previous session amid fading expectations of a near-term Federal Reserve rate hike. However, gold has failed to hold those levels, with profit-taking and elevated oil prices keeping concerns over future inflation pressures alive. 

Data this week showed that U.S. PPI inflation cooled by more than expected to 4.7% year-on-year in July, down from 5.5%. This came after U.S. consumer price inflation earlier in the week showed CPI at 3.4%, in line with forecasts. 

Initial jobless claims also rose to 209,000 from 200,000, suggesting that the labour market is losing some strength, particularly after July’s non-farm payroll report showed a contraction in job creation. 

As a result, expectations for a September Fed rate hike have fallen to 35%, down from 55% just a week ago. 

Falling Fed rate hike expectations are usually supportive for non-yielding gold as they reduce the opportunity cost of holding the precious metal. 

Gold fails to hold $4450 post inflation data 

However, those gains have been short-lived. After reaching 4,450 on Thursday, gold has fallen back towards 4,350 on Friday. So far, the move looks more like profit-taking following last week’s 7% breakout rally rather than a major change in the outlook for gold and dip buying could support the precious metal. 

However, the Middle East remains a risk. Ongoing uncertainty is keeping oil prices elevated, offsetting some of the support gold is getting from weaker economic data. Oil prices rallied 20% across July after falling 35% across May and June. 

Furthermore, the latest developments in the Middle East suggest that the U.S. could keep its naval blockade of Iranian ports in place indefinitely, which could see oil prices rise further. 

Elevated oil prices are keeping inflation concerns alive, with the 10-year Treasury yield pushing higher again on Friday. The USD is also set for modest gains this week. 

So while this week’s data showed inflation cooling, the rise in energy prices means that inflation could quickly pick up again. This could limit how long the Federal Reserve can hold rates unchanged and, in turn, cap gold’s near-term upside.  

Attention will now turn to US retail sales and the University of Michigan Confidence, which could provide further insight into the Fed’s path for rates. Weak data could lower Fed rate hike expectations further and boost non-yielding gold. 

Gold technical analysis 

After breaking out of the symmetrical triangle pattern, gold extended gains above the 50- and 200-day EMAs, rising to a high of 4,450 before easing back to 4,350 at the time of writing. The price remains above the 200 EMA and, combined with the RSI above 50, the outlook remains constructive. 

Buyers will look to break above 4,450 to bring 4,500, the psychological level, into focus. Above here, attention turns to 4,765, the May high. 

On the downside, support is seen at the 200 EMA around 4,300, followed by the 50 EMA around 4,200. A break below the 50 EMA would bring 4,000 into focus, ahead of 3,914, the 2026 low. 

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