Gold bounces from weekly low on softer US Dollar, fading September Fed hike bets

Gold (XAU/USD) regained ground after opening in the red and hitting a record low of $4,311 on Friday. By the time of this report, it is trading near $4,381, buoyed by a weaker US Dollar and waning hopes of an immediate Federal Reserve interest rate increase. Although it is still below its two-month peak of $4,449 reached on Thursday, recent U.S. economic data underlines a slowdown in momentum.

Retail Sales slipped 0.6% month-over-month in July, leaving market expectations for a 0.1% rise and reversing the 0.2% gain in June. This sluggish spending trend followed weak Consumer Price Index (CPI) and Producer Price Index (PPI) figures, suggesting inflationary pressures are softening. However, Michigan University's preliminary data revealed a minor uptick in consumer inflation expectations to 4.3% in August from 4.2% in July, while the 5-year expectation remained steady at 3.3%.

The declining economic data has pushed U.S. Treasury yields down sharply, putting pressure on the US Dollar, as traders reduce bets on a September Fed rate hike. The US Dollar Index (DXY) is currently at 99.50, down 0.45% for the day. The CME FedWatch Tool now shows a 71% probability that the Fed will maintain rates steady next month.

This positive outlook for the non-yielding metal is tempered by the fact that inflation is still above the Fed's 2% target, and the lingering effects of the energy crisis, compounded by uncertainty over the Strait of Hormuz's reopening. TD Securities notes that options traders are increasing their long positioning in gold, along with a renewed discretionary interest.

Despite the metal's recent strength, it is yet to cross the 100-day Simple Moving Average ($4,386) and holds above the 20-day SMA ($4,173). The Relative Strength Index (RSI) on the daily chart is 62, while the MACD indicator is in positive territory, indicating robust bullish momentum that could challenge the overhead barrier. The next strong resistance zone is between the 100-day SMA and the Bollinger upper band at $4,455.

Conversely, immediate support lies at the Bollinger middle band near $4,173, followed by the $4,000 psychological level. Should the price fall further, it could test the lower Bollinger band around $3,891.