Gold surged on Friday, climbing closer to the day’s swing high as the dollar under pressure

Gold attracts some dip-buying near the $1,712 area on Monday and turns positive for the second straight day. The XAU/USD refreshes its daily high, around the $1,726-$1,727 region during the European session and moves back closer to a one-and-half-week high touched on Friday.

The US dollar remains under intense selling pressure on the first day of a new week, extending last week’s sharp retracement slide. In fact, the USD Index, which measures the greenback’s performance against a basket of currencies, dives to a fresh monthly low and offers support to the dollar-denominated gold.

Given that the markets have already priced in a 75 bps Fed rate hike move in September, subdued action around the US Treasury bond yields turns out to be a key factor weighing on the greenback. Apart from this, growing worries about a deeper global economic downturn further contribute to driving flows towards safe-haven gold.

Gold H1

Although a positive risk tone in the stock market might be a headwind for gold, investors should be cautious before betting on gold appreciating any further. Central banks are likely to raise rates more aggressively, which could put downward pressure on gold.

Investors might be inclined to move to the sidelines ahead of the release of the latest US consumer inflation figures on Tuesday. The crucial US CPI report will have a significant impact on the Fed’s policy outlook and, as a result, the near-term USD trajectory. This will give investors a better idea of where gold is headed next.

At this moment, it seems more likely that the XAU/USD will enter a period of consolidation rather than seeing any major market-moving economic activity from the United States. Even so, things like changes in bond yields and the overall USD price could still have an impact on gold prices and give traders some opportunities to profit in the short term.