XAU/USD, the trading pair for gold against the US dollar, is having one of the most difficult times as the market begins to change its behavior. After a faux breakout during the overnight through the $4,350-$4,355 resistance area, XAU/USD bears back in firm control. The asset’s price then dropped below the 100-hour Simple Moving Average (SMA), cementing a bearish sentiment among traders.
Even with these latest drawbacks, XAU/USD remains on track to post slight weekly gains for the second week in a row. The US CPI report released this morning continues to indicate that inflationary pressures are continuing to cool. This simple change tends to move gold prices the most. That $4,338-$4,340 region now constitutes a short-term stress point for gold, adding extra difficulty to its eventual progress.
Market Dynamics and Resistance Levels
Traders have their eyes on the $4,338-$4,340 resistance block. If XAU/USD manages to pierce through this resistance, it’d be on a new crusade to test its historical peak again. That high, hit in October, is just over $4,380. However, mixed oscillators on both the hourly and daily charts point to indecision in the market.
The outlook for XAU/USD remains precarious. A clean break and close acceptance underneath the important $4,300 level are required to re-confirm a bearish reversal. If this happens, XAU/USD could decline further to the $4,272-$4,271 area, which is a major drop from where it stands today.
The Impact of a Stronger Dollar
A higher US dollar normally has an opposite effect, lowering demand for USD-denominated commodities including gold. As traders start pricing in the expectations of economic signals, the potential for downtrending US interest rates are bringing back the appetite for riskier assets. This change in dynamics may prove XAU/USD bearish as investors recapitalize on rate cut prospects.
As of now, traders are pricing in just over 63 basis points (bps) of rate cuts by the end of 2026. This speculation has the potential to create long-term downward pressure on gold prices as market participants change their behavior based on new strategies. US President Donald Trump recently weighed in on the selection of the next Federal Reserve chair, endorsing much lower interest rates. This further complicates the landscape for XAU/USD.
Inflation Data and Investor Sentiment
The core CPI data showed a 2.6% jump last month when you exclude the often-volatile food and energy prices. After all, this strong statistic props up the US dollar and puts a damper on gold prices. The relationship between the direction of inflation data and investor sentiment will be key as traders continue to tread water in this choppy market.
Given these circumstances, the default direction for XAU/USD is to the downside. If buyers manage to keep prices above $4,400, it may trigger further enthusiasm by optimistic traders. This new movement would be a new trigger that cuts through the clutter of their purchasing behaviour. This momentum would give XAU/USD more opportunities to continue its long-standing overall bullish trend.