Gold trades around $4,345 on Monday, a small retreat from last week’s high but a clear hold of a massive 7% rally. That surge, according to FXStreet, was powered by two converging forces: a sharp dovish repricing of Federal Reserve rate expectations and tentative diplomatic moves in the Middle East. The metal’s refusal to give back significant ground this week signals the market is treating last week’s gains as fundamentally justified, not speculative froth.
A One-Week Reversal on Fed Fate
The trigger for the rally was clear: the July US Nonfarm Payrolls data. The weaker-than-expected jobs numbers caused a seismic shift in interest rate expectations within days. The probability of a September Fed rate hike, as priced by the CME FedWatch Tool, collapsed from 67% to 44% in the span of a week.
This is more than a minor adjustment. It represents a market forcefully walking back a previously dominant “higher for longer” narrative. Strategists at Brown Brothers Harriman frame the current moment as one where “the scope for a material hawkish repricing looks limited,” viewing restrictive Fed policy as a lingering headwind for the US Dollar. This shift directly fed the gold rally; falling rate-hike odds pressure the dollar and lower the opportunity cost of holding a non-yielding asset.
“A soft US CPI print would strengthen the case for a dovish repricing in Fed hike expectations and further undermine USD,” note BBH analysts.
The immediate test of this new market belief arrives with US Consumer Price Index (CPI) data on Wednesday and Producer Price Index data on Thursday. These prints will either validate or punish last week’s aggressive repositioning.
Geopolitics Cuts Both Ways
While the Fed narrative provided the rocket fuel, Middle East tensions provided the launch pad. The source material highlights a critical and nuanced development: reports that Iran and Oman are moving closer to an agreement to reopen the Strait of Hormuz.
On the surface, this is bearish for gold. Reopening a critical oil chokepoint would ease supply constraints, pushing Oil prices lower and reducing energy-driven inflation fears. This is precisely what the source notes: “Inflation concerns also eased as Iran and Oman reportedly moved closer to finalising an agreement... pushing Oil prices lower.”
Yet, the situation remains fraught. The source adds that Oil prices remain well above pre-war levels, keeping inflation concerns alive in the background. Furthermore, the geopolitical rhetoric is contradictory. US President Donald Trump stated Washington is “semi-negotiating” with Tehran, while Iran’s Foreign Ministry explicitly denies holding direct talks. Their spokesperson, Esmaeil Baghaei, made security conditional on “an end to military action and compensation for previous attacks.”
This creates a tense equilibrium for gold. Any de-escalation that crushes the oil premium is a clear downside risk. But the path to that resolution is littered with potential for renewed spikes in tension, a scenario that would instantly re-ignite gold’s safe-haven bid. For now, the market is breathing slightly easier, but it hasn't exhaled fully, as we analyzed in our earlier piece, Gold Gains on Strait Standoff and CPI Countdown.
The Technical Picture: Holding Gains Above Key Support
Monday’s pause is a classic consolidation within a firm bullish trend, not a reversal. The technical analysis provided in the source paints a clear picture of a market in a “developing recovery phase.”
- Key Moving Averages: Price is holding well above the 50-day Simple Moving Average (SMA) near $4,150, a major support level. It is currently testing resistance at the 100-day SMA around $4,389.
- Momentum Indicators: The Relative Strength Index (RSI) is in the mid-60s, indicating firm upside momentum without being overbought. The Average Directional Index (ADIX) in the high-20s suggests a “moderately strengthening trend.”
- Price Targets: The immediate bullish objective is a break above the 100-day SMA, opening a path toward the next horizontal resistance zone near $4,500. On the flip side, a break below the 50-day SMA near $4,150 would “undermine the current bullish tone” and could trigger a deeper correction toward $4,000.
This setup tells traders that the bullish structure built last week remains intact. The market is pausing to gather strength for the next move, which will be dictated by the incoming CPI/PPI data.
XOOMAR Analysis: The Stalemate in Plain Sight
Reading between the lines of the source data reveals a fascinating stalemate that explains gold’s resilience.
The US Dollar Index (DXY) is “attempting to form a base near a two-month low” around 99.70. The 10-year US Treasury yield is holding near 4.67%, which is still high historically, just below its recent peak of 4.74% (the highest since January 2025). In a textbook world, these conditions, a potentially basing dollar and lofty yields, should cap gold rallies.
Yet gold isn’t retreating. This points to a market that is discounting the sustainability of these levels. The yield is high, but the market is betting the Fed’s next move isn’t another hike, but a prolonged hold followed eventually by cuts. The dollar is trying to find a floor, but the BBH analysis suggests the fundamental drivers for a major rally are absent.
Gold’s strength here is a referendum on limits. It suggests the market believes there is a limit to how far the Fed can push real rates without breaking something, and a limit to how much geopolitical risk can be arbitraged away through diplomacy while core conflicts remain unresolved. This dynamic of pricing in policy ceilings is a key theme for 2026, as evident in other corners of the market like the RBNZ Bucks Global Easing With Loneliest Rate Hike Bet.
What Consolidation Now Means for the Next Breakout
The week hinges on the August US CPI print. The market has already placed its bet: inflation is moderating enough to keep the Fed on hold. The source-quoted BBH view explicitly states the “balance of risks... is skewed against the US Dollar.”
Here are the two clear scenarios from here:
Scenario 1: CPI Confirms the Dovish Repricing
A soft or in-line inflation print likely sends the dollar resuming its decline and Treasury yields dropping further. This would be the green light for gold to assault the 100-day SMA ($4,389) and begin a true test of the $4,500 resistance. This path aligns with the technical recovery phase and would validate last week’s rally as prescient.
Scenario 2: CPI Sparks a Hawkish Shock
A significantly hot print would force a violent reassessment. It would trigger a “knee-jerk USD bounce,” per BBH, and send front-end yields soaring. Gold would likely retreat sharply to test its core support at the 50-day SMA ($4,150). A break below that level would shift the short-term narrative back to “higher for longer” and could open a move toward $4,000.
The current price action, holding firm near weekly highs, shows the market’s confidence is leaning toward Scenario 1. The consolidation isn’t fear; it’s a coiled spring awaiting confirmation. The metal’s performance post-data will be a pure gauge of whether last week’s dramatic shift in Fed expectations was wisdom or folly. For traders, the playbook is simple: the breakout from this $4,340-$4,390 range, catalyzed by Wednesday’s data, will set the tone for gold’s trajectory into the critical September Fed meeting.
Disclaimer: This XOOMAR analysis is for informational and educational purposes only. It is not financial, investment, legal, tax, or professional advice. It does not provide buy, sell, hold, price-target, portfolio, or personalized recommendations. Verify information independently and consult qualified professionals before making decisions.
The Bottom Line
- Gold's stability above $4,345 signals investors see recent gains as justified by fundamentals, not just speculation.
- The collapse in Fed rate hike probability from 67% to 44% redefines monetary policy expectations and dollar strength.
- Upcoming CPI and PPI data will immediately test whether last week's aggressive market repositioning was warranted.
Originally published on XOOMAR. For more news and analysis, visit XOOMAR.
