Gold is back near $4,400, but real test may be what Fed says next

Gold moved higher on Monday, pushing back towards $4,400 as a weaker dollar and a run of softer US economic data strengthened the case for the Federal Reserve to leave interest rates unchanged in September.

Spot gold rose 0.4% to $4,391.07 an ounce in Asian trading, while December futures gained 0.3% to $4,448.10.

Bullion reached a two-month high last week and has now gained for two consecutive weeks.

The dollar index slipped 0.1%, providing another tailwind because a weaker US currency makes gold cheaper for buyers using other currencies.

Softer US data improve gold’s rate backdrop

Gold’s latest advance reflects a significant change in the Fed debate over the past two weeks.

July consumer prices rose 3.4% from a year earlier, down from 3.5% in June, while core inflation eased to 2.5%. Producer prices were unchanged in July and slowed to 4.7% annually.

The picture weakened further on Friday when US retail sales unexpectedly fell 0.6% in July, their largest decline in more than a year.

University of Michigan consumer sentiment also dropped to 51 from 55.2.

Traders now assign roughly a 30% probability to a September rate increase, down from 47% a month earlier. Lower expected rates generally help gold because bullion itself pays no interest.

KCM Trade analyst Tim Waterer sees softer inflation and dollar weakness as giving gold room to challenge $4,400 again.

His view is that a convincing move beyond $4,500 would probably require another leg lower in the dollar or some easing in energy prices.

$4,400 becomes the immediate technical battle

The rally still faces resistance after gold failed to hold its recent move above $4,400.

Gold futures ended last week at $4,380.40, gaining about 0.9% for the week and more than 8% across two weeks.

That suggests the broader rebound remains intact despite repeated profit-taking near recent highs.

The $4,400-$4,500 area is therefore becoming an important test.

A sustained break could encourage momentum traders to rebuild positions, while another rejection could send bullion back towards the $4,300 support zone.

Underlying investment demand is also improving.

Global physically backed gold ETFs attracted $3 billion in July, while holdings increased by 23 tonnes to 4,068 tonnes after June’s heavy outflows.

Fed minutes could test the bullish narrative

Attention now shifts to minutes from the Fed’s July 28-29 meeting, due Wednesday at 2 pm ET.

The release should offer more detail on how policymakers viewed inflation risks and the case for further tightening.

Gold bulls will be looking for evidence that officials are becoming more comfortable waiting before raising rates again.

The risk is that policymakers remain worried about persistent inflation, particularly with energy prices elevated.

That could limit further declines in Treasury yields and prevent gold from breaking decisively above $4,500.