Gold bounces off two-week low as USD bulls turn cautious ahead of US CPI, Fed’s Warsh

• Gold attracts some buyers during the Asian session on Tuesday, though the upside seems limited.
• The USD pauses after a two-day rally, ahead of the US CPI report and Fed Chair Warsh’s testimony.
• Escalating US-Iran tensions and Fed hike bets favor USD bulls, which should cap the precious metal.

Gold (XAU/USD) recovers slightly from a nearly two-week low, touched during the Asian session on Tuesday, and climbs back above the $4,000 psychological mark, though the upside potential seems limited. The US Dollar (USD) pauses following a strong two-day rally as bulls turn cautious ahead of the latest US consumer inflation figures and Federal Reserve (Fed) Chair Kevin Warsh’s testimony. This, in turn, is seen as a key factor offering some support to the bullion. However, escalating US-Iran tensions, along with firming Fed rate-hike expectations, back the case for a further near-term USD appreciation and should cap the yellow metal.

The US Consumer Price Index (CPI) report will be published later today and is expected to show a fall in the headline number amid a significant decline in gasoline prices during June. Meanwhile, the focus will be on the core CPI figures, which act as a primary gauge to track the underlying inflation trend. Furthermore, Fed Chair Kevin Warsh’s inaugural semi-annual monetary policy testimony before the House Financial Services Committee will influence rate-hike bets. The outlook, in turn, will play a key role in influencing the near-term USD price dynamics and providing some meaningful impetus to the non-yielding Gold.

In the meantime, the closure of the Strait of Hormuz and escalating US-Iran tensions lift Crude Oil prices to a nearly one-month high, reigniting inflation fears and raising prospects of higher-for-longer US interest rates. The US military launched a third straight night of strikes against Iran on Monday after US President Donald Trump reimposed a naval blockade of Iranian ports. In response, Iran’s Islamic Revolutionary Guard Corps (IRGC) targeted US facilities in the region, while two UAE tankers were hit by Iranian cruise missiles in the strait. Traders were quick to price in geopolitical risk premiums, which favors the USD bulls.

The aforementioned fundamental backdrop suggests that the path of least resistance for the Gold price remains to the upside. Hence, any subsequent recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. The XAU/USD pair seems vulnerable to decline further toward retesting the year-to-date low, around the $3,943-$3,942 region, touched on June 30.

XAU/USD daily chart

Gold’s bearish technical setup backs the case for the emergence of fresh sellers

From a technical perspective, the precious metal stays well below the 200-day Simple Moving Average (SMA) and keeps the broader tone bearish within a descending channel. Meanwhile, the Moving Average Convergence Divergence (MACD) is marginally positive, hinting at fading downside momentum. However, the Relative Strength Index (RSI) near 39 remains below the neutral line and reinforces a still fragile recovery rather than a confirmed bullish turn.

Hence, any subsequent move up is likely to be sold into and remain capped near the $4,100 mark. A sustained strength above could trigger a short-covering rally and lift the Gold price to the channel resistance, around $4,221. Some follow-through buying should expose the 200-day SMA pivotal resistance around $4,495.01, which, if cleared, would negate the bearish bias. On the downside, key support sits around $3,761.01 at the parallel channel boundary, and a decisive move back toward that zone would reopen the path for a deeper slide.

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