Gold declines as firmer US Dollar, hawkish Fed outlook weigh

Gold prices slipped on Friday as a stronger US Dollar and hawkish Federal Reserve outlook weighed on the precious metal. The XAU/USD pair traded around $4,040, down nearly 1.50% on the day after failing to hold above $4,100. The US Dollar Index fell to a six-week low on Thursday, possibly due to Japanese yen intervention. The dollar's rise comes amid Middle East tensions, which boost energy prices and inflation concerns, prompting expectations of higher Fed interest rates.

Despite this, gold remains on track for a losing streak, as higher US interest rates limit its upside. The Fed recently left rates unchanged, with some policymakers favoring small policy moves over bold actions to combat inflation. Traders currently price a 65% chance of a 25-basis-point rate hike in September, according to the CME FedWatch Tool.

Data showed a rise in consumer sentiment and expectations indices, with inflation expectations remaining steady. In the short term, XAU/USD is predicted to stay within a range as traders monitor developments in the Middle East and the Fed's interest-rate outlook. Technical indicators suggest stabilization, with a break below the $4,000 level exposing support near $3,850.

On the upside, resistance lies at the 21-day Simple Moving Average at $4,071, potentially opening the way to the 50-day SMA at $4,185 and the stronger 100-day SMA at $4,425. Gold, a historically significant store of value and medium of exchange, is currently seen as a safe-haven asset and hedge against inflation and currency depreciation.

Central banks hold the largest gold reserves, adding 1,136 tonnes in 2022, the highest annual purchase on record.