TradingKey - As of the European session on August 17, gold prices (XAUUSD) were trading above $4,400, up about 0.7% on the day and reaching an intraday high of $4,416.43, extending last Friday's gains. Recent weak U.S. economic data has further dampened market bets on a Fed rate hike in September, thereby providing ongoing support for gold prices.

Gold Returns to $4,400 as Weak US Economic Data Eases Fed Rate Hike Expectations

From a fundamental perspective, the core factor supporting today's continued rise in gold prices is that expectations for a Fed rate hike continue to cool.

Previously released U.S. nonfarm payrolls data for July was noticeably weak, while the latest inflation data showed no clear signs of price pressures getting out of control. Immediately following that, U.S. retail sales data released last Friday further reinforced expectations of an economic slowdown, leading the market to continue lowering the likelihood of a Fed rate hike in September.

According to the CME FedWatch Tool, the probability of a Fed rate hike in September has fallen to 30.8%. As rate hike expectations quickly waned, U.S. Treasury yields and the U.S. dollar came under pressure, with the U.S. Dollar Index falling about 0.3% today, reducing the cost for non-dollar investors to buy gold.

This shift is also the main reason gold has recently been able to push from near $4,300 back toward $4,400. Gold itself generates no interest; when the market believes the likelihood of the Fed continuing to raise interest rates has decreased, the opportunity cost of holding gold relative to yield-bearing assets like U.S. Treasuries declines, thereby attracting capital back into the precious metals market.

Source: CME Group

Next, market focus turns to the minutes of the Fed's July meeting, set to be released on August 19 ET. Given that three officials already supported a rate hike at the July meeting, if the minutes show more officials remaining concerned about inflation, the market may again raise expectations for a rate hike this year. Conversely, if the minutes show the Fed becoming increasingly focused on risks to employment and economic growth, it could further reinforce expectations of a rate pause, providing support for gold to continue rising.

Gold Price Technical Analysis

Gold Price Daily Chart, Source: TradingView

According to the daily chart, gold came under pressure and pulled back last Thursday after touching a short-term resistance level at $4,450. However, it halted its decline and rebounded after retesting the 10-day moving average last Friday, showing that bullish sentiment dominates the market. The upward movement continued today, demonstrating that gold's short-term bullish structure remains intact and prices are expected to continue testing the $4,450 resistance level to the upside.

Currently, the primary overhead resistance level for gold stands at $4,450. A breakthrough above this level could see gold testing the $4,500 mark. Continuing higher, gold faces a key resistance level at $4,580, which sits near the 144-day moving average and may create a confluence of resistance. If gold can break through and hold above $4,580, it will unlock further upside potential, with the potential to test the $4,890 resistance level.

On the downside, the primary support level to watch is last Friday's pullback low of $4,310. If this level fails to hold, gold prices could fall further toward the $4,220 support level.

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