Gold rallied sharply on Wednesday driven by inflation data before retreating from its peak, with intensified tug-of-war between bulls and bears on the chart. Since the U.S. released a disappointing July nonfarm payroll report last Friday, the market has rapidly repriced Federal Reserve rate policy expectations, with bets on steady rates in September rising sharply. As the U.S. Dollar and Treasury yields fell in tandem, spot gold broke above $4440.00 per troy ounce intraday. Nevertheless, the high price triggered short-term profit-taking, narrowing the rally gradually, and gold closed at $4408.36 per ounce, up 0.9%. Market sentiment diverged on Thursday. Spot gold nearly touched the $4450.00 threshold in early ASIan trading, yet strengthened safe-haven demand for the U.S. Dollar amid escalated geopolitical tensions dragged gold sharply lower. During the European session, spot gold dipped to an intraday low of $4363.91. As of press time, it rebounded to around $4391.45 and entered a technical consolidation phase in the short run. Investors are closely watching U.S. economic data due Thursday, including July PPI and weekly initial jobless claims, which are expected to create trading opportunities for gold.

Data released by the U.S. Bureau of Labor Statistics on Wednesday showed July CPI largely matched market consensus. Headline CPI rose 3.4% year-on-year, lower than the forecast and down from the prior reading of 3.5%. Core CPI, excluding volatile food and energy components, climbed 0.2% month-on-month and 2.5% year-on-year, in line with broad market estimates. The soft inflation print boosted risk sentiment and lifted odds that the Fed will hold rates unchanged at its September meeting, delivering mild support to gold. Though markets priced in a modest dovish adjustment for Fed policy outlooks, the data failed to send a clear directional signal for short-term rates and the U.S. Dollar. The dollar ultimately closed stronger, causing gold to surrender part of its rally after the sharp spike.

On the geopolitical front, market participants remain wary of inflation risks stemming from oil price volatility triggered by U.S.-Iran standoff. U.S. President Trump reiterated that the U.S. has "full control" over the Strait of Hormuz, while Iran insisted the vital waterway would remain closed until all its demands are fulfilled. In addition, Iran-backed Houthi militias in Yemen escalated attacks on vessels navigating the Red Sea and Bab el-Mandeb Strait, targeting Saudi ships. These developments pushed up the war risk premium, rendering crude oil prone to upside moves and amplifying inflation concerns across markets. Gold’s pullback from recent highs reflects peRSIstent divergence over the Fed’s policy trajectory; a single soft inflation print is insufficient to fuel a sustained one-way rally for bullion.

Short-term Gold Market Outlook: Immediate upside resistance for spot gold stands at $4495.00 per troy ounce, with key downside support located at $4225.00 per troy ounce.

Spot Gold Daily Chart

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