Can Gold Bulls Build on Last Week’s Recovery?

• Gold remains under pressure as higher interest rates and elevated limit upside.
• A weaker US dollar supported last week’s rebound, though the broader gold trend remains cautious.
• Markets await ISM Services PMI and Fed minutes for fresh policy direction clues.

has started the new week a touch lower after rising about 2% last week. That was the first weekly gain in 5 weeks, thanks largely to disappointing , which triggered a pullback in the US dollar. Though the weaker greenback last week gave bullion some breathing room, the overall directional bias remains tilted to the downside for the metal.

Indeed, it is important to keep last week’s recovery in perspective. Gold has just come through one of its weakest quarters in recent years, ending almost 30% below the record highs reached earlier in the year. Consecutive monthly declines throughout the second quarter underline how dramatically investor sentiment has shifted.

Markets are increasingly focused on the prospect of higher interest rates remaining in place for longer, rather than anticipating imminent policy easing. That change in expectations has significantly reduced enthusiasm for gold, which typically performs better when real yields are falling and monetary policy is becoming more accommodative.

Higher rates continue to limit upside potential

Although the latest employment figures briefly revived hopes that the Federal Reserve may not hike rates so soon after all, the broader policy backdrop still looks challenging for gold.

Under new Fed Chair Kevin Warsh, the central bank has abandoned formal forward guidance, leaving investors to interpret incoming economic data for clues about future policy. While that has increased market uncertainty, it has also reinforced the idea that interest rates could remain elevated for an extended period if inflation refuses to ease.

For gold, that is not an ideal environment. Elevated Treasury yields increase the opportunity cost of holding a non-yielding asset, while a resilient US dollar should also cap any short-term rallies. The recent US dollar weakness helped fuel the latest recovery, but unless the currency enters a more sustained downtrend, this could prove to be little more than a temporary relief rally.

That said, there are still supportive longer-term factors for gold. Central banks continue adding to their gold reserves as they diversify away from US dollar assets, providing an important source of structural demand. However, geopolitical risks have become less influential following the agreement between the US and Iran to reopen the Strait of Hormuz. As safe-haven demand fades, investor attention has shifted back towards economic data and central bank policy.

Gold technical analysis: Recovery needs further confirmation

From a technical perspective, gold has shown encouraging signs over the past couple of sessions. The rebound has been supported by the softer US dollar, while prices have now managed to record several consecutive daily closes above the psychologically important $4,000 level.

That represents a positive development, but I am not yet convinced that a lasting bottom has been established. At this stage, I still view the latest advance as a counter-trend rally within a broader bearish market structure.

The most important short-term resistance to watch sits around the $4,195-$4,200 region, where, as we have seen already today, a descending trendline continues to act as significant resistance. A decisive break above that area would improve the technical outlook considerably and increase confidence that the recent correction has finally run its course.

On the downside, the $4,100 support area remains crucial, or more generally, the $4,098-$4,136 zone highlighted on the chart. A move back beneath this region would quickly shift the near-term gold direction back towards the downside. More importantly, a daily close below $4,000 would likely attract fresh selling pressure and reinforce the longer-term bearish trend.

For now, I remain neutral from a technical standpoint. The recent recovery is constructive, but it has not yet provided enough evidence to abandon my broader cautious view.

This week’s focus: ISM Services PMI and Fed minutes

Attention now turns to another busy week for US economic data and central bank communication.

Today’s release of the ISM Services PMI will provide an important update on the health of the US economy and could influence expectations for future Federal Reserve policy. With Chair Kevin Warsh continuing to emphasise a data-dependent approach, each major economic release has become increasingly significant for financial markets.

Later in the week, the publication of the June FOMC meeting minutes will offer investors a closer look at policymakers’ thinking. Markets will be particularly interested in whether Warsh’s relatively hawkish tone from that meeting reflects a broader consensus within the committee, or whether there are also signs of concern over economic momentum.

Unless the minutes reveal a more dovish shift than markets currently expect, interest rate expectations are unlikely to change materially.

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

Read my articles at City Index