Despite headwinds from the Fed’s hawkish stance, elevated Treasury yields, and weaker investment demand, gold continues to show resilience. Support from central banks and a weaker US dollar are helping the precious metal hold its ground. Let’s discuss this topic and outline a trading plan for XAU/USD.
The article covers the following subjects:
Major Takeaways
- Central bank demand for bullion remains volatile.
- A weaker US dollar is supporting gold.
- Uncertainty surrounding the Fed is keeping XAU/USD in consolidation.
- Breakout strategies remain relevant within the $3,965–4,165 range.
Weekly Fundamental Forecast for Gold
What doesn’t kill you makes you stronger. A more hawkish Federal Reserve, rising Treasury yields, and weaker central bank demand for bullion would normally be expected to push gold into a prolonged downtrend. However, the $4,000 per ounce level has repeatedly proven to be strong support, and traders have once again adopted a buy-the-dip approach. Whether this strategy will continue to pay off remains to be seen. For now, the precious metal is on track for its first monthly gain in six months.
Monthly Gold Performance
Source: Bloomberg.
According to revised World Gold Council (WGC) data, central banks purchased 57 tonnes of bullion in the first quarter, compared with the previously reported 244 tonnes. This marks the lowest quarterly total in more than 15 years. The decline is hardly surprising, given that gold surged to record highs near $5,600 per ounce, significantly reducing demand, including from central banks. However, after XAU/USD fell by 30% from its all-time high during April–June, central bank purchases rebounded to 289 tonnes, the highest second-quarter total on record.
Central Bank Bullion Purchases
Source: Bloomberg.
However, weaker investment demand, which fell to 262 tonnes, including 45 tonnes of ETF outflows, has limited gold’s upside potential. At the same time, the renewed conflict in the Middle East has increased the risk of higher inflation and strengthened the hawkish camp within the FOMC.
Although the probability of a Federal Reserve policy tightening in September has declined from 75% to 65%, and the likelihood of two rate hikes in 2026 has fallen from 51% to 41%, both figures remain elevated. Investors understand that the FOMC is not a one-person show. Regardless of Kevin Warsh’s attempts to present himself as a hawk while masking his reluctance to raise interest rates, other Committee members are likely to remain focused on fighting inflation. The higher consumer prices rise, the greater the likelihood of a tightening cycle, which continues to weigh on XAU/USD.
As a result, gold’s consolidation appears justified. Bulls continue to benefit from a weaker US dollar, reduced confidence in the Fed as Kevin Warsh appears to delay action by shifting responsibility to financial markets, and renewed central bank buying following the recent price decline. Meanwhile, bears continue to rely on ETF outflows, elevated Treasury yields, and the growing number of hawkish FOMC members.
Weekly Trading Plan for XAU/USD
Under these conditions, macroeconomic data and geopolitical developments are likely to determine gold’s next move. A prolonged conflict in the Middle East could push Brent crude prices higher and fuel inflation, while a cooling US labour market could slow PCE inflation. Gold is unlikely to establish a clear direction until it breaks out of the $3,965–4,165 per ounce range. Therefore, breakout trading strategies remain the preferred approach.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAUUSD in real time mode
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