• Gold regains positive traction as the USD remains near a three-month low amid easing expectations for near-term Fed rate hikes.
• Inflation risks stemming from higher oil prices support US Treasury yields, which could help limit further USD weakness.
• The US–Iran deadlock keeps geopolitical risk premiums elevated and calls for caution among USD bears.

Gold (XAU/USD) extended its intraday breakout above the technically significant 200-day Simple Moving Average (SMA) and climbed to its highest level since late May during the first half of the European session on Friday. The precious metal remains on track to post gains for a third consecutive week and is benefiting further from broad-based weakness in the US Dollar (USD). Traders have scaled back expectations for near-term interest-rate hikes by the Federal Reserve (Fed) after the latest US inflation data released last week pointed to signs of easing price pressures. This has kept the USD near its lowest level in more than three months, reached on Thursday, and is viewed as a key factor supporting the non-yielding bullion.

However, investors remain concerned about inflation risks arising from higher oil prices, which are being supported by the ongoing US–Iran standoff over the Strait of Hormuz. In addition, Iran-backed Houthi forces in Yemen claimed to have targeted eight oil tankers since announcing a maritime blockade on Saudi shipments in late July. This has increased the risk of a broader regional conflict and pushed oil prices to a three-week high on Thursday. This, to some extent, offset the US Treasury Department's plan to double the size of several long-term debt buyback operations and continues to support elevated US Treasury yields.

Meanwhile, the minutes of the July 28–29 FOMC meeting, released on Wednesday, revealed that Fed officials indicated a need to raise interest rates in the near term unless further progress is made in reducing inflation. In addition, the CME Group FedWatch Tool shows that investors are still pricing in around a 68% probability that the US central bank will raise borrowing costs at least once by the end of the year. This, together with continued geopolitical uncertainty, could help limit a deeper decline in the safe-haven US Dollar and discourage bullish traders from aggressively positioning for further gains in Gold.

In the latest development surrounding the Middle East crisis, President Donald Trump said on Wednesday that the US would launch the "most devastating economic operation" against Iran. Trump also threatened to impose severe sanctions on any country helping Tehran evade sanctions or doing business with Iran. In addition, Vice President JD Vance said that economic pressure is the most effective tool against Iran. This keeps geopolitical risk premiums elevated, supporting the possibility of USD buying at lower levels, which in turn could limit further gains in Gold.

Technical Analysis

The XAU/USD pair appears to have established acceptance above the 200-day SMA, with buyers now waiting for a move above the 61.8% Fibonacci retracement level of the April–June decline before initiating fresh positions. Furthermore, the Moving Average Convergence Divergence (MACD) indicator remains positive, reinforcing the bullish bias. Meanwhile, the 14-day Relative Strength Index (RSI) stands at 67.70, approaching overbought territory and signaling strong bullish momentum, although the move may already be somewhat stretched.

Nevertheless, the broader technical setup remains constructive in the short term. Therefore, a sustained move above the 61.8% Fibonacci retracement at $4,529 should pave the way for further gains toward the 78.6% retracement at $4,687, followed by the cycle high at $4,889.

On the downside, immediate support is seen at the 61.8% retracement level at $4,529.03, followed by the 200-day SMA at $4,514.16, and then the 50% retracement near $4,417. Deeper support levels are found at the 38.2% retracement at $4,306.50, the 23.6% retracement around $4,168, and the structural low near $3,946.