Gold remains depressed below monthly peak, looks to US PPI for some impetus – FXStreet

• Gold prices have retreated from near monthly highs that were retested earlier this week on Tuesday.
• Bulls chose to reduce their bets amid a bullish risk environment and ahead of the release of US inflation data.
• Geopolitical risks and expectations of a 50bps rate cut by the Fed will help cap the decline.

Gold prices (XAU/USD) are struggling to capitalize on the previous day’s strong gains of over 1%, seeing intraday selling near the monthly highs that were retested during Tuesday’s Asian session. The declines can be attributed to some position adjustment trades ahead of key US inflation data, as well as positive risk tones that tend to dampen demand for the safe haven precious metal.

That said, rising geopolitical tensions in the Middle East and concerns over a broader conflict in the region may be keeping market optimism in check. This, combined with expectations of a dovish Federal Reserve (Fed) that will put US Dollar (USD) bulls on the defensive, should provide some support to low-yielding gold prices. Traders are now looking to the US Producer Price Index (PPI) as a meaningful driver.

Daily Digest Market Trends: Gold prices pressured as safe-haven demand fades ahead of U.S. inflation data release

• Israel stepped up operations near the southern Gaza Strip city of Khan Yunis on Monday, boosting demand for safe-haven gold amid growing risks of escalating conflict in the Middle East.
• Israel is also preparing for the possibility of imminent attacks by Iran and the Lebanese group Hezbollah in retaliation for the assassination of Hamas leader Ismail Haniyeh in Tehran in late July.
• Russian President Vladimir Putin has told Ukraine to expect a proportionate response to the recent border incursion into the western Kursk region, which is about 12 kilometers deep and 40 kilometers wide.
• This coincides with market expectations of a significant 50 basis point interest rate cut by the Federal Reserve in September, which continues to be a boon for low-yielding gold.
• However, XAU/USD upside remains limited as risks remain bullish and traders opt to stay on the sidelines ahead of key US inflation data.
• The U.S. Producer Price Index (PPI) is due to be released on Tuesday, followed by the U.S. Consumer Price Index (CPI) on Wednesday, which should provide further clues about the direction of Fed policy.
• The data is expected to show inflation slowed in July, giving the US central bank some breathing room to begin a policy easing cycle and boosting prospects for further gains in commodities.

Technical analysis: Gold bulls prevail, could break $2,448-2,450 hurdle overnight

From a technical perspective, the breakout of the horizontal resistance at $2,448-2,450 overnight was seen as a fresh catalyst for bullish traders. Moreover, oscillators on the daily chart are gaining positive traction, suggesting that the path of least resistance for gold prices is to the upside. Hence, a re-test of the record highs around $2,483-2,484 is seen as a distinct possibility. This will be followed by the psychological milestone of $2,500, which if broken decisively will set the stage for an extension of the upward trajectory.

Conversely, the resistance breakpoint of $2,450-$2,448 appears to be preventing any near-term declines, below which gold prices could fall to overnight lows near $2,424-$2,423. The next relevant support is near $2,412-$2,410, ahead of the round number mark of $2,400. A firm break below this could expose the 50-day simple moving average (SMA) support near $2,376-$2,375, which should prove to be a key turning point. Any follow-through selling could drag gold prices down to the late-July lows near $2,353-$2,352. The latter is in line with the 100-day SMA, and sustained weakness below this would shift the short-term bias in favor of bearish traders.