FX.co ★ XAU/USD, GOLD

Gold (XAU/USD) continued its strong upward momentum ahead of Friday's European trading session, hovering near the $4,200 mark and approaching its highest level in a week. Fueled by a weaker dollar, gold attracted buyers for the second consecutive day. The dollar's decline was a key factor, as it retreated further from its April highs due to falling US Treasury yields. This followed a positive long-term bond auction and a policy speech by US President Trump indicating a pause in military action against Iran before the November midterm elections, while diplomatic dialogue continued. These factors combined to curb rising oil prices, ease market concerns about short-term inflation, and reduce demand for the dollar as a safe haven, allowing gold to recover from its two-month low earlier this week. However, structural macroeconomic obstacles continue to hinder the prospects for a robust recovery. Persistent global inflation, volatile energy prices, and geopolitical tensions surrounding the Strait of Hormuz are keeping market risk premiums high. Statements by US Vice President Vance and other officials, emphasizing the need for stricter uranium enrichment cuts, along with responses from the Iranian leadership, have further heightened tensions in the Middle East. Moreover, while the market anticipates the Federal Reserve will pause its tightening monetary policy at its next meeting in October, the interest rate probabilities tracked by the CME FedWatch Index show that market participants still expect an 80% probability of a Fed rate hike before the end of the year. Longer-term forecasts from institutions such as the UOB Group suggest that if energy shocks and AI-related economic expansion continue to drive prices higher, the Fed's tightening path could extend into early 2027, limiting long-term dollar weakness. From a technical analysis perspective, the pair remains within the familiar sideways range that has formed over the past two weeks, exhibiting significant resilience below the 78.6% Fibonacci retracement level of the June-August rally. Short-term momentum indicators suggest potential for a strengthening trend, with the MACD pointing upward and the 14-period RSI rising towards the 59 midline. However, because this bullish momentum has yet to effectively break above the upper resistance levels, the upper limit of the current range (near $4,200) remains a key psychological barrier. A sustained break above this resistance level could lead to further gains towards the 100-period SMA at $4,227 and the 61.8% Fibonacci retracement level at $4,231. A break above this dense, multi-layered supply zone would pave the way for further gains, targeting the 50% Fibonacci retracement at $4,320 and the 38.2% Fibonacci retracement at $4,409, while the 23.6% Fibonacci retracement at $4,519 represents a more significant structural resistance level. On the other hand, initial technical support is firmly anchored at the 78.6% Fibonacci retracement level near $4,104, where speculators seeking buying opportunities are expected to enter during pullbacks, thus maintaining a narrow-range trading pattern in the short term. Market participants are also awaiting fresh catalysts from the University of Michigan Consumer Sentiment Index and inflation expectations data.