Gold edges lower to near $4,400 as Iran-US tensions counter support from tame US inflation

Gold prices dipped to around $4,400 during the early Asian trading session on Thursday, impacted by heightened tensions between the United States and Iran. However, the potential downside for the precious metal may be subdued due to subdued inflation data, which lessens pressure on the US Federal Reserve to raise interest rates soon.

An Iranian official stated that Washington and Tehran continue to disagree on reaching a permanent solution to the ongoing conflict in the Gulf. There has been no advancement in talks to revive the interim deal signed in June and determine a timeline for implementation.

The recent moderation in US inflation, as indicated by the Consumer Price Index (CPI) data released by the Bureau of Labor Statistics on Wednesday, has tempered expectations for a September Federal Reserve rate hike. The CPI rose 3.4% year-over-year in July, slightly lower than the 3.5% increase in the previous month. When food and energy are excluded, the core CPI expanded by 2.5% year-over-year in July, matching expectations.

Interest-rate swaps indicate a 40.1% probability of a Fed hike in September, whereas the odds of a move in October declined to roughly 60% from 75% the previous day, with the next rate increase fully projected for December.

Despite the recent price movement, the gold market appears to be increasingly anticipating a pause in Fed rate hikes. This positive sentiment for bullion is reinforced by recent technical analysis, which shows that XAU/USD is holding a bullish near-term bias as it surpasses the 100-day simple moving average (SMA) and stays firmly above the Bollinger Bands’ 20-day middle line.

The Relative Strength Index (14) at 67.51 is nearing overbought territory, suggesting that the latest surge is robust but becoming stretched. The immediate resistance level on the upside is the Bollinger upper band at $4,410, which could facilitate further gains if broken. Conversely, support is near the current price level, with the 100-day SMA at $4,390 serving as the primary floor, followed by the Bollinger middle band at $4,140. A deeper decline towards the lower band at $3,865 would only occur if the uptrend starts to weaken.