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Gold dips below $3,350 on US CPI data and hopes of trade deals before the August deadline

  • Gold dips below $3,350 as markets digest US CPI data and tariff news.
  • The US Consumer Price Index (CPI) rose to 2.7% (YoY) in June, with the core CPI at 2.9%, slightly below the 3% forecast.
  • XAU/USD price action remains capped on Tuesday as bullish momentum fails to gain traction.

Gold (XAU/USD) is trading in a narrow range on Tuesday, following the US Consumer Price Index (CPI) report that reinforced expectations the Federal Reserve (Fed) may refrain from a near-term rate pivot.

At the time of writing the precious metal is trading below $3,350, with risk-sentiment and a slight uptick in risk-sentiment limiting the upside move

The June Consumer Price Index (CPI) showed that headline CPI rose 2.7% (YoY), in line with expectations, while core CPI came in at 2.9%, slightly lower than the 3% consensus but still well above the Fed’s 2% target.

The lack of faster disinflation has tempered expectations for a September rate cut, with Fed funds futures now pricing in a 59% probability, slightly lower than prior to the release.

The market reaction reflects a repricing of interest rate expectations, with Treasury yields firming and the US Dollar advancing. Despite encouraging industrial figures from China and the Eurozone.

Gold daily digest: Trade tensions, tariff risks, and price pressures drive XAU/USD price action

  • According to the CME FedWatch Tool, analysts expect the Fed to hold interest rates steady within the 4.25% to 4.50% range in July. The probability of a September rate cut is currently at 59.9%, reinforcing a hawkish Fed stance. 
  • Additional catalysts for Gold on Tuesday include developments in bilateral relations. As the August 1 tariff deadline approaches, the increase in levies on US imports could further support demand for safe-haven assets, including precious metals. In contrast, easing trade tensions and improved risk sentiment could weigh on XAU/USD price action.
  • After US President Donald Trump announced that tariffs on EU imports to the US will be set at 30% on Saturday, an official statement was published on the European Commission’s press corner on Sunday, which read, “We remain ready to continue working towards an agreement by August 1. At the same time, we will take all necessary steps to safeguard EU interests, including the adoption of proportionate countermeasures if required.” 
  • On Friday, President Trump announced that Mexico will also face a 30% levy on imports to the US. A letter to Mexican President Claudia Sheinbaum, posted on Truth Social read: “Despite our strong relationship, you will recall, the United States imposed Tariffs on Mexico to deal with our Nation’s Fentanyl crisis, which is caused, in part, by Mexico’s failure to stop the Cartels, who are made up of the most despicable people who ever walked the Earth, from pouring these drugs into our country,”
  • In a press conference on Monday, President Sheinbaum responded, stating that “If the United States government and its agencies wanted to address the serious consumption of fentanyl in their country, they could combat the sale of narcotics on the streets of their main cities, which they don’t do”.
  • The wave of trade threats, especially from the US, Mexico, and the EU, adds a layer of political uncertainty that supports safe-haven demand in Gold. Traders may continue buying dips in XAU/USD not just on soft economic data, but also on signs of deteriorating diplomacy, particularly if rhetoric escalates ahead of August 1 deadline.

Gold technical analysis: XAU/USD dips below $3,350 as bullish momentum fades

Gold is trading below $3,350 at the time of writing, with the 20-day Simple Moving Average (SMA) providing immediate support near $3,337. Below that level, the next supports to look out for are the 50-day Simple Moving Average (SMA) around $3,324 and the $3,300 psychological level.

Price action has broken out of a tightening triangle formation, hinting at a bullish outlook ahead, although confirmation is needed above the $3,371, which aligns with the 23.6% Fibonacci retracement of the April low-high range.

Gold (XAU/USD) daily chart

A clean move through $3,400 could open the door toward the June high of $3,452 and a potential retest of the record high at $3,500. 

Meanwhile, the daily Relative Strength Index (RSI) is currently around 52, as bullish momentum remains capped.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.