Gold’s Rebound Faces a Double Headwind: Yields and Oil

• Gold extended its rebound last week as softer US economic data weakened the dollar, but elevated remain a key hurdle.
• Oil prices and Middle East tensions could shape gold’s next move, with higher crude potentially reviving inflation concerns and limiting Fed easing expectations.
• Gold faces key resistance at $4,365-$4,455, while $4,300-$4,305 and $4,200 are the first support levels to watch.

further extended its recent rebound last week as a softer run of US economic data weighed on the , improving the backdrop for the precious metal. But with little on the US data calendar in the week ahead, attention is likely to shift back to bond yields and . Yields moved higher again on Friday as they continued to consolidate near the top of their recent range.

Oil has followed a similar pattern, with prices repeatedly attracting buyers on dips. Both markets could prove decisive for gold in the days ahead. Ultimately, if they don’t turn lower, this should help limit gold’s upside potential from here.

Yields remain a key hurdle for gold

The macro backdrop for gold may have become more constructive as weaker data weighed on the US dollar, but elevated bond yields remain a notable constraint.

The recent release of a disappointing was followed by broadly in-line inflation data, weaker retail sales and softer consumer sentiment. Taken together, the figures point to some loss of momentum in the US economy and have reinforced expectations that the Federal Reserve may opt to keep interest rates unchanged in September.

That has helped weaken the dollar, normally a positive development for gold. Yet the move has been less supportive than it might otherwise have been because Treasury yields have remained elevated. This is becoming an increasingly important headwind for gold, while also creating a more challenging environment for risk assets.

Oil could determine the next move

With the US data calendar relatively quiet, the focus is likely to return to developments in the Middle East and, in particular, the direction of crude oil prices.

There has been limited progress towards reviving the earlier US-Iran agreement, while uncertainty surrounding the Strait of Hormuz continues to pose a significant risk to global energy markets.

For gold, the problem is that higher oil prices could undermine the more benign inflation narrative. US inflation data have recently been relatively encouraging, but crude prices rose by around 20% in July. If that strength persists, or oil moves higher again, inflation could prove more persistent than expected.

That would leave the Fed with less room to ease policy and could push Treasury yields and the dollar higher — precisely the combination gold would rather avoid.

Gold faces a key technical test

Gold spent much of last week testing the $4,365-$4,455 resistance area, but couldn’t secure a break above it. The zone is technically important, combining a previous swing low with an area where former support has turned into resistance.

On the downside, initial support is located around $4,300-$4,305, followed by the $4,200 area. Below that, $4,100-$4,120 is likely to be more significant, as it represents the base of the recent breakout.

A decisive move above $4,365-$4,455 would improve the technical outlook and suggest that the broader bullish trend is beginning to reassert itself. Conversely, another failure at resistance, particularly alongside a stronger dollar and higher oil prices, would leave gold vulnerable to a deeper consolidation.

For the recent rally to develop into something more durable, gold probably needs a combination of further evidence that US inflation is not accelerating and a meaningful retreat in Treasury yields. Until that happens, the metal may continue to struggle to gain further ground, leaving the next decisive move dependent as much on bonds and oil prices.

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.

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