Gold prices edged higher on Monday, approaching the $4,400 mark as a softer dollar and a series of weaker-than-expected US economic reports reinforced expectations that the Federal Reserve will hold interest rates steady in September. Spot gold rose 0.4% to $4,391.07 per ounce during Asian trading, while December futures gained 0.3% to $4,448.10.
The precious metal touched a two-month high last week and has now posted gains for two consecutive weeks. The dollar index slipped 0.1%, providing an additional tailwind, as a weaker greenback makes gold more affordable for international buyers.
Softer Data Reshape Rate Expectations
Gold's recent advance reflects a notable shift in the Fed policy debate over the past fortnight. July consumer prices rose 3.4% year-over-year, down from 3.5% in June, while core inflation eased to 2.5%. Producer prices were unchanged in July and slowed to 4.7% annually. The picture weakened further on Friday when US retail sales unexpectedly fell 0.6% in July, the largest decline in over a year. Consumer sentiment, as measured by the University of Michigan, also dropped to 51 from 55.2.
Traders now assign roughly a 30% probability to a September rate increase, down from 47% a month earlier. Lower expected rates generally benefit gold, as the metal pays no interest. Tim Waterer, an analyst at KCM Trade, sees softer inflation and dollar weakness as giving gold room to challenge $4,400 again. He suggests that a convincing move beyond $4,500 would likely require another leg lower in the dollar or some easing in energy prices.
$4,400 Becomes the Immediate Technical Battle
The rally still faces resistance after gold failed to hold its recent move above $4,400. Futures ended last week at $4,380.40, gaining about 0.9% for the week and more than 8% across two weeks. That suggests the broader rebound remains intact despite repeated profit-taking near recent highs. The $4,400-$4,500 area is therefore becoming an important test. A sustained break could encourage momentum traders to rebuild positions, while another rejection could send bullion back towards the $4,300 support zone.
Underlying investment demand is also improving. Global physically backed gold ETFs attracted $3 billion in July, while holdings increased by 23 tonnes to 4,068 tonnes after June's heavy outflows.
Fed Minutes Could Test the Bullish Narrative
Attention now shifts to minutes from the Fed's July 28-29 meeting, due Wednesday at 2 pm ET. The release should offer more detail on how policymakers viewed inflation risks and the case for further tightening. Gold bulls will be looking for evidence that officials are becoming more comfortable waiting before raising rates again. The risk is that policymakers remain worried about persistent inflation, particularly with energy prices elevated. That could limit further declines in Treasury yields and prevent gold from breaking decisively above $4,500.
This article is for informational purposes only and does not constitute financial advice.
