Softer US Inflation, Lower Yields and Improving ETF Flows Support Gold; Analysts See Buying Opportunity on Dips
Gold prices may enter a period of consolidation after a sharp recent rally, but the medium-term outlook remains positive, according to Praveen Singh, Head of Commodities at Mirae Asset Sharekhan.
Spot gold recently climbed to around $4,449 per ounce, its highest level in two months, supported by softer US inflation, lower Treasury yields, a weaker dollar, improving gold ETF flows and expectations of a less hawkish US Federal Reserve.
Singh believes the yellow metal could consolidate its recent gains before attempting another move higher, with $4,500 identified as the key resistance level. On the downside, $4,300 is seen as the immediate support, while $4,200-$4,220 represents a stronger support zone.
Disclaimer: The views quoted in this article are those of Praveen Singh, Head of Commodities at Mirae Asset Sharekhan. They are for informational purposes and should not be construed as investment advice.
Gold Rally Faces Profit Booking
Gold has experienced a sharp rally in recent sessions, with spot prices touching approximately $4,449.
The move was supported by a combination of softer US economic data, falling yields and expectations of a more accommodative monetary-policy environment.
However, the speed of the recent rally has also encouraged traders to book profits.
At the time of Singh's assessment on August 13, spot gold was trading around $4,463, down approximately 1 per cent on the day.
The analyst believes some consolidation after such a sharp move would be healthy for the market.
US Inflation Provides Support
The latest US CPI data has strengthened the case for a less restrictive Federal Reserve.
Headline CPI eased from 3.5 per cent in June to 3.4 per cent in July, while core CPI declined from 2.6 per cent to 2.5 per cent.
Monthly inflation readings remained subdued and broadly matched expectations.
For gold, softer inflation can be supportive because it may reduce the pressure on the Federal Reserve to maintain elevated interest rates.
US Producer Inflation Also Cools
The producer price data provided another encouraging signal.
US headline PPI declined from 5.5 per cent year-on-year in June to 4.7 per cent in July, below the market expectation of 4.9 per cent.
Core PPI increased 4.2 per cent year-on-year.
On a monthly basis, core PPI increased 0.2 per cent, below the expected 0.3 per cent increase.
The combination of moderating consumer and producer inflation has helped reinforce expectations of a potentially softer US monetary-policy stance.
Fed Rate Expectations Have Shifted
Expectations surrounding the Federal Reserve remain a major driver for precious metals.
According to Singh, the probability of a Fed rate hike at the September FOMC meeting has fallen to approximately 35 per cent from 75 per cent a month earlier.
Similarly, the probability of a rate hike by the end of the year has declined to around 70 per cent from 90 per cent.
Lower expectations for interest-rate increases can benefit gold because the opportunity cost of holding a non-yielding asset tends to decline when interest-rate expectations soften.
Falling Bond Yields Add to Gold's Appeal
US Treasury yields have also moved lower.
The two-year yield declined to approximately 4.14 per cent, while the 10-year yield stood around 4.64 per cent.
A sustained decline in yields could provide further support to gold, particularly if inflation continues to moderate.
Investors will therefore closely monitor upcoming US economic indicators for clues about the Federal Reserve's next policy decision.
Dollar Weakness Supports Gold
The US Dollar Index was around 99.98, approximately 1.8 per cent below its recent 15-month high of 101.80.
A weaker dollar generally supports gold because the metal becomes relatively cheaper for investors holding other currencies.
If the dollar continues to weaken alongside lower yields, the combination could provide another tailwind for bullion.
Geopolitical Uncertainty Remains a Key Factor
Geopolitical uncertainty continues to support safe-haven demand.
Developments surrounding the Strait of Hormuz and the broader US-Iran situation have contributed to volatility across energy and financial markets.
Conflicting reports regarding shipping through the strategic waterway have added another layer of uncertainty.
During periods of elevated geopolitical risk, investors often increase exposure to assets perceived as stores of value, including gold.
Crude Oil Volatility Could Influence Gold
Brent crude futures were trading around $87.78 per barrel at the time of Singh's assessment.
Oil prices remain sensitive to developments around the Strait of Hormuz.
The International Energy Agency has raised its estimate of the third-quarter oil-market deficit, while simultaneously forecasting a significant surplus in 2027.
For gold, the direction of crude prices has two potential implications.
A sharp increase could revive inflation concerns and complicate the Federal Reserve's policy outlook. On the other hand, persistent geopolitical stress could increase demand for safe-haven assets.
Gold ETF Flows Show Signs of Recovery
Investment demand through gold exchange-traded funds has started improving.
Global gold ETF holdings increased to around 97.34 million ounces, up from a cycle low of approximately 96.16 million ounces recorded in July.
Holdings have increased for six consecutive sessions, indicating renewed investor participation.
However, total holdings remain below their year-to-date level as well as the previous cycle peak.
Further improvement in ETF flows could therefore become an important catalyst for the next leg of the gold rally.
COMEX Inventories Remain Below Their Peak
Registered COMEX gold inventories stood at around 14.45 million ounces.
Although inventories have recovered slightly from the recent cycle low, they remain around 40 per cent below the record level of 24.25 million ounces reached in April 2025.
Lower inventories can provide additional support to sentiment, although the recent recovery means immediate physical supply concerns are not particularly acute.
China's Gold Demand Shifts Towards Investment
China remains an important source of global gold demand.
According to data from the China Gold Association, total Chinese gold consumption increased 1.23 per cent to 511.41 tonnes in the first half of 2026.
However, jewellery consumption fell sharply.
Gold jewellery demand declined nearly 34 per cent year-on-year to 132.13 tonnes, while investment demand increased approximately 28 per cent to 339.34 tonnes.
The divergence suggests that high gold prices are discouraging jewellery purchases while encouraging investors to increase their exposure to the precious metal.
Central Banks Continue to Support the Market
Central-bank demand remains an important structural factor for gold.
Several central banks have increased their gold holdings over recent years as part of efforts to diversify foreign-exchange reserves.
Such demand can provide support even when jewellery consumption weakens.
For investors, continued official-sector buying is therefore an important indicator of the longer-term demand outlook.
Upcoming US Data Could Drive Volatility
Several important US economic releases are due in the coming sessions.
Markets will watch:
- July retail sales
- University of Michigan sentiment
- Inflation expectations
- TIC capital flows
- ADP employment data
- Import prices
- Housing starts
- Industrial production
- Philadelphia Fed manufacturing data
- Leading economic indicators
Any significant surprise in these numbers could affect Treasury yields, the dollar and expectations around the Fed — and consequently influence gold prices.
FOMC Minutes in Focus
The release of the latest FOMC meeting minutes will be another important event for precious-metals investors.
A dovish tone could reinforce expectations of easier monetary policy and support gold.
Conversely, continued concerns about inflation could limit the scope for rate cuts and place pressure on bullion.
Gold's Rally Could Need a Pause
Despite the supportive fundamentals, Singh believes gold may need to consolidate.
The metal gained more than 7 per cent during the week ended August 7, representing a significant move in a short period.
A period of sideways movement or moderate correction could allow the market to absorb the gains without necessarily damaging the broader trend.
This makes the next few sessions particularly important from a technical perspective.
$4,500 Is the Key Resistance
From a technical standpoint, $4,500 is the next major hurdle for spot gold.
A decisive breakout above this level could strengthen the bullish setup and potentially open the way for further gains.
However, failure to cross the level could result in continued range-bound trading or profit booking.
$4,300 Provides Immediate Support
On the downside, Singh identifies $4,300 as the immediate support.
A deeper correction could bring gold towards the $4,200-$4,220 zone.
Holding these levels would be important for maintaining the broader bullish structure.
A sustained break below the broader support zone, however, could signal that the recent rally has lost momentum.
Key Positive Factors for Gold
The current outlook is supported by several factors:
- Moderating US inflation
- Lower US Treasury yields
- Weaker dollar
- Falling expectations of Fed rate hikes
- Improving ETF inflows
- Strong central-bank demand
- Geopolitical uncertainty
- Rising investment demand in China
Key Risks to the Outlook
At the same time, investors should watch for factors that could weaken gold's momentum.
Persistent US inflation
Inflation remains above the Federal Reserve's 2 per cent target and could constrain monetary easing.
Stronger dollar
A renewed dollar rally could weigh on dollar-denominated gold.
Profit booking
The sharp recent rise could encourage further selling.
Weak jewellery demand
High prices are already affecting physical jewellery consumption in major markets such as China.
Improving inventories
Higher inventories could reduce immediate concerns about physical supply.
What Should Investors Watch Next?
The direction of gold over the coming weeks is likely to depend on the interaction between four major factors:
Fed policy expectations + US yields + Dollar movement + Geopolitical risk
If yields and the dollar continue to decline while geopolitical uncertainty remains elevated, gold could attempt a breakout above $4,500.
If inflation proves sticky and yields rise again, consolidation could become deeper.
Market Outlook
The outlook for gold remains constructive, although a period of consolidation is increasingly likely after the recent sharp rally.
Mirae Asset Sharekhan expects gold to find support on declines, with $4,300 acting as the first important support and $4,200-$4,220 as the broader support zone. On the upside, $4,500 remains the key technical resistance.
The fundamental backdrop remains favourable. Softer US inflation, declining Treasury yields, a weaker dollar, improving ETF inflows and lower expectations of Fed rate hikes are supporting bullion. Continued central-bank purchases and geopolitical uncertainty provide additional structural support.
However, the more than 7 per cent weekly gain recorded recently means that some profit booking would not be unusual. A controlled consolidation could actually strengthen the market by allowing prices to digest the previous rally.
For investors, the key strategy is to avoid chasing sharp rallies and instead watch the $4,300 and $4,200-$4,220 support zones for signs of renewed buying interest. A sustained breakout above $4,500 could signal another leg higher, while a decisive breakdown below the broader support zone would warrant greater caution.