Gold surged past $4,395 on Monday, powered by fading bets on a Federal Reserve rate hike that are now outweighing simmering U.S.-Iran tensions according to FXStreet.
The rally in the early Asian session extends a move fueled by last week's cooler inflation and retail sales data. Money markets now price just a 33.1% chance of a September Fed hike, a dramatic shift that has hammered the U.S. dollar and supercharged the appeal of non-yielding bullion. This price action follows our previous coverage of Gold Rallies as Market Prices Fed Pause on Mild PPI.
The Inflation Data That Crushed Rate Hikes
The Fed's hawkish posture is losing its foundation, brick by brick. The catalyst for gold's latest leg higher was a double dose of soft U.S. economic data on Friday.
The US Census Bureau revealed that US Retail Sales declined by 0.6% MoM in July.
This followed a rise of 0.2% in June and missed the expectation for a 0.1% gain. Coming on the heels of tame Consumer and Producer Price Index numbers, the report painted a clear picture: inflationary pressure is gradually easing. For a market conditioned to expect aggressive Fed action, that narrative has cracked. The opportunity cost of holding gold plummets when interest rate expectations fall, and traders are acting accordingly.
Why Geopolitics Is Taking a Back Seat
Typically, a sharp escalation in Middle East tensions would send investors scrambling for gold's safe harbor. Right now, that classic script is being ignored.
Iran's deputy foreign minister recently told the U.S. to "accept the reality of defeat," and Foreign Minister Abbas Araghchi stated there are "no negotiations currently taking place" over reopening the Strait of Hormuz. Yet, this geopolitical heat is merely capping gold's rise, not fueling it. The driver has decisively shifted to macroeconomics.
Analysts at Commerzbank argue the backdrop is now supportive because they expect the Fed to hold steady. They note, "the gold price therefore still has further upside potential." But they add a crucial caveat for traders: the path won't be smooth.
The New Bullish Signal: ETF Demand
Commerzbank highlights a critical shift reinforcing the bullish case. "Another positive factor for the price of gold is the renewed buying interest from ETF investors." After months of outflows, this return of institutional capital suggests a more durable constructive medium-term outlook is forming, beyond short-term tactical trades.
The Technical Battlefield After the Breakout
With fundamentals shifting, the technical chart shows where the next fight will happen.
The Bullish Setup:
- The price holds above key trend supports like the 100-day Simple Moving Average (SMA) at $4,385.85.
- The Relative Strength Index (RSI) sits at 64.09, indicating bullish momentum without being overbought yet.
- This suggests buyers have room to push for the next major resistance level.
Key Levels to Watch:
- Immediate Resistance: The upper Bollinger Band at $4,480. A break here would signal a powerful extension of the rally.
- Major Support: The confluence of the 100-day SMA and the 20-day Bollinger middle band near $4,195. A sustained break below this zone would severely damage the near-term constructive bias and could open a drop toward $3,905.
This technical landscape echoes the uncertainty present in the fundamental story, where rallies face stiff overhead resistance even as the floor appears to have risen.
What Could Derail or Accelerate the Rally
Gold's next move hinges on a tug-of-war between two forces, and traders are watching for the next catalyst.
The Bull Case (Dominant Now): Any further evidence of a cooling U.S. economy will solidify the "Fed pause" trade. Weak jobs data or another soft inflation print would likely catapult gold toward the $4,480 resistance as rate hike bets evaporate completely. The return of ETF flows, as noted, provides a steadier bid.
The Bear Case (The Counter-Risk): The rally is vulnerable to a hawkish Fed reset. A surprise hot inflation report or aggressively firm rhetoric from Fed officials could swiftly reinstate rate hike fears, strengthening the dollar and pressuring gold back toward $4,200. Furthermore, if the U.S.-Iran stalemate shows unexpected diplomatic progress, the modest geopolitical premium in the price could quickly unwind.
For now, the market's verdict is clear. The fear of higher interest rates is a more potent force for gold traders than the fear of geopolitical explosion. This represents a significant shift in market focus, as we saw when tensions previously provided the main support in reports like Gold Holds $4,345 After Fed Rate Bet Collapse. The path to $4,500 is open, but it runs directly through the Fed's next policy signal.
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
- The drop in Fed rate hike probability to 33.1% significantly reduces the opportunity cost of holding non-yielding gold, boosting its appeal.
- Easing U.S. inflation and retail sales data signal weakening economic momentum, making gold a more attractive safe-haven asset.
- Geopolitical tensions (U.S.-Iran) are taking a back seat to monetary policy shifts, highlighting that gold's current rally is fundamentally rather than crisis-driven.
Originally published on XOOMAR. For more news and analysis, visit XOOMAR.
