Gold drops to $4,040 as US dollar rebounds, upside capped

Gold slipped to about $4,040 an ounce on Friday, its first monthly rise since February, as a stronger US dollar erased earlier gains and capped further upside amid growing expectations of a September rate hike【1】.

Market backdrop

The dollar’s rebound from a more‑than‑one‑month low lifted the benchmark DXY near the 98.50 zone, prompting profit‑taking and a modest pullback in US Treasury yields【3】. Higher oil prices, driven by renewed US‑Iran tensions, have kept inflation concerns alive, reinforcing expectations that the Federal Reserve will tighten policy later this year. Markets now price a roughly 65% chance of a rate increase in September, a shift from earlier, more dovish outlooks.

Gold’s price dynamics

Gold’s July performance (+0.5%) marked its first monthly gain after a five‑month slump, supported by softer US inflation data and the Fed’s decision to hold rates steady【1】. However, the metal’s upside remains limited by the prospect of tighter monetary policy. While Fed Chair Kevin Warsh reiterated the commitment to curb inflation, three dissenting governors warned that additional tightening may be needed, reinforcing the market’s 65% hike probability【1】. The ongoing US‑Iran conflict has also weighed on gold, as higher oil prices boost inflation expectations and, consequently, the appeal of higher‑yielding assets over non‑yielding gold.

Technical view

On the 30‑minute chart, gold has held above the $4,000 support zone and briefly broke a descending trendline, suggesting short‑term bullish momentum【2】. Yet, the broader structure shows mixed signals, with bearish continuation setups forming around the $4,165 liquidity zone, indicating that further upside could be constrained unless the dollar weakens or inflation data surprise to the downside【2】.

What to watch

• Fed September meeting – a rate hike decision or forward guidance could shift gold’s risk‑off appeal.
• US Dollar Index – a move below the 98.50 level would ease pressure on gold.
• Oil prices – sustained levels above $90 per barrel keep inflation concerns high, supporting a stronger dollar and limiting gold’s upside.

Gold’s price is now anchored by a stronger dollar and the market’s growing belief that the Fed will tighten later this year, leaving little room for a sustained rally unless inflation data or geopolitical developments alter the current narrative.