Gold Shines Bright at Two-Month High Amid Fed Uncertainty and Dollar Weakness

Gold has staged a remarkable comeback, surging to a two-month high near $3,450 as it capitalizes on a softer US Dollar and growing expectations of Federal Reserve policy easing. Despite robust US economic data, the precious metal has found strong demand, fueled by safe-haven flows and persistent geopolitical and monetary policy uncertainties. On Friday, gold (XAU/USD) erased early losses to trade around $3,447.755, up 0.90% for the day, marking its highest level since mid-June and setting the stage for significant monthly gains of 3.61%.

The rally in gold prices comes despite a US Dollar that has shown signs of stabilization after a three-day decline. The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, is holding near 98.00, but its inability to break higher has provided a tailwind for gold. US Treasury yields have stabilized, with the 10-year yield hovering around 4.22% and the 30-year yield near 4.90%. Markets remain focused on the Federal Reserve’s next steps, with an 89% probability of a 25-basis-point rate cut in September, reinforcing gold’s appeal as a non-yielding asset in a low-interest-rate environment.

US economic data released on Friday revealed persistent inflationary pressures alongside resilient consumer spending. The Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, rose 0.3% month-on-month in July, matching expectations, while the annual rate climbed to 2.9% from 2.8%, the highest since February. Headline PCE inflation increased by 0.2% monthly, steady at 2.6% annually, while personal spending jumped 0.5% in July, surpassing forecasts and June’s 0.3% gain. Personal income also grew by a solid 0.4%. Despite these signs of economic strength, the anticipation of looser monetary policy has overshadowed the data, keeping gold’s bullish momentum intact with a year-to-date gain of 31.34%.

Geopolitical tensions and concerns over the Federal Reserve’s independence have further bolstered gold’s safe-haven allure. Recent diplomatic efforts to broker peace in ongoing global conflicts have faltered, with a deadly missile strike in Kyiv highlighting the fragility of ceasefire hopes. Meanwhile, a legal battle over the Fed’s autonomy has intensified market uncertainty. A Fed governor’s lawsuit challenging an attempt to remove her has raised questions about the central bank’s independence, with a court hearing set to keep the issue in focus. The debate centers on the interpretation of “for cause” under the Federal Reserve Act, a matter that could escalate to higher courts and prolong uncertainty.

From a technical perspective, gold has consolidated above the critical $3,400 level, finding support after a brief dip and pushing toward Thursday’s peak of $3,423. The Relative Strength Index (RSI) is nearing overbought territory at around 70, signaling strong bullish momentum. Key support lies at $3,400, with additional cushions at the 21-period Exponential Moving Average (EMA) near $3,395 and the 100-period EMA around $3,365. On the upside, a break above $3,423 could pave the way for a push toward $3,450, while a drop below $3,400 might expose the $3,380-$3,370 support zone. With the PCE report behind and Fed policy expectations driving sentiment, gold’s short-term trajectory will likely depend on its ability to hold above $3,400 or decisively clear $3,423 resistance.

As gold continues to benefit from a weaker Dollar, geopolitical risks, and Fed uncertainty, its outlook remains firmly bullish. With a 5-year performance of 75.46% and a 6-month gain of 19.86%, investors are likely to view any short-term pullbacks as buying opportunities, keeping the precious metal on track for further gains in the weeks ahead.