Gold remains close to June 5 high as receding Fed hike bets undermine USD

Gold (XAU/USD) continues to trade near its June 5 high, buoyed by fading speculation around an imminent Federal Reserve (Fed) rate increase. The precious metal, however, has yet to fully capitalize on the momentum, remaining below its peak since June 5 amid mixed economic indicators. US Retail Sales data for July showed a decline of 0.6% year-over-year, the first monthly decline since May 2021 and the largest drop in nine months, while the University of Michigan's Consumer Sentiment Index dropped to 51 in August from 55.2 in July.

These factors, coupled with signs of easing US inflation, have tempered expectations for an immediate Fed rate hike, which has helped support the non-interest bearing safe-haven gold price. However, investors remain concerned that volatile energy prices could complicate the inflation outlook and keep the Fed in a hawkish stance, limiting the upside for gold.

Additionally, escalating geopolitical tensions between the US and Iran, as well as President Trump's assertion of control over the Strait of Hormuz, further support the US Dollar (USD). Treasury Secretary Scott Bessent announced pending economic measures against Iran, while Iran's Foreign Minister Abbas Araghchi warned that the US must agree to Iran's terms for shipping to resume through the waterway.

Ukrainian attacks on Russian refineries have also contributed to higher oil prices, keeping inflation concerns and the prospect of a Fed rate hike in 2026 alive. Currently, 65% of traders using CME Group's FedWatch Tool expect the Fed to raise interest rates by year-end. As such, caution is advised for those betting on further appreciation in gold prices, pending further clues on the Fed's future policy direction.

The focus will now shift to the FOMC minutes release on Wednesday, as well as evolving geopolitical developments. From a technical standpoint, gold has repeatedly failed to break above the $4,400 mark, or the 50% retracement level of the April-June decline, which raises concerns for bullish investors. The metal also trades below its 200-day Simple Moving Average (SMA), further capping the broader trend despite recent gains.

The Relative Strength Index (RSI) stands at 64.43, indicating bullish momentum, while the Moving Average Convergence Divergence (MACD) remains positive. Despite these improving indicators, the overall tone remains bearish due to the presence of resistance. However, sustained strength and a breakthrough above the $4,400 mark could allow gold to test the 200-day SMA near $4,506 and the 61.8% Fibonacci retracement level at $4,509.

Major resistance is expected at the 78.6% Fibonacci level at $4,666 and the cycle high zone at $4,865. On the downside, initial support can be found at the 38.2% Fibonacci retracement level at $4,290, followed by the 23.6% level at $4,154, and a deeper potential breach of the $3,935 Fibonacci anchor.