Gold extended its rebound last week as softer US data weakened the dollar, but elevated Treasury yields kept a lid on the advance. The metal is now testing resistance at $4,365-$4,455, with oil prices and Middle East tensions likely to decide its next move.
Gold extended its recent rebound last week as a softer run of US economic data weighed on the dollar, improving the backdrop for the metal. But Treasury yields moved higher again on Friday, consolidating near the top of their recent range and limiting how far gold can run.
Yields remain a key hurdle
A disappointing US jobs report was followed by broadly in-line inflation data, weaker retail sales and softer consumer sentiment. Together, the figures point to some loss of momentum in the economy and have reinforced expectations that the Federal Reserve may keep interest rates unchanged in September.
That backdrop has weakened the dollar, normally a positive for gold. Yet the move has been less supportive than it might otherwise have been because Treasury yields have stayed elevated, an increasingly important headwind for the metal and for risk assets more broadly.
Oil could decide the next move
With the US data calendar quiet this week, attention is likely to shift to the Middle East and the direction of crude oil prices. Progress toward reviving the earlier US-Iran agreement has been limited, and uncertainty around the Strait of Hormuz still poses a risk to global energy markets.
Higher oil prices could undermine the more benign inflation narrative. US inflation data have been relatively encouraging, but crude prices rose about 20% in July. If that strength persists, inflation could prove more persistent than expected, leaving the Fed less room to ease and pushing yields and the dollar higher — the combination gold would rather avoid.
Gold tests key resistance
Gold spent much of last week testing the $4,365-$4,455 resistance zone but could not break above it. The area combines a previous swing low with a level where former support has turned into resistance.
On the downside, initial support sits around $4,300-$4,305, followed by the $4,200 area. Below that, $4,100-$4,120 is more significant, marking the base of the recent breakout. A decisive break above resistance would support the broader bullish trend; another failure, especially alongside a stronger dollar and higher oil, would leave gold vulnerable to deeper consolidation.
For the rally to become durable, gold probably needs further evidence that inflation is not accelerating and a meaningful retreat in Treasury yields.
Source: Investing.com
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