The rebound in gold prices is gaining traction. The yellow metal has surged over 9% in August, but an expert warns the key technical test is yet to arrive.

A benign July inflation report, softer U.S. employment data and signs of progress toward reopening the Strait of Hormuz have all reduced pressure on the Federal Reserve to raise interest rates.

According to the CME FedWatch tool, the odds of a September rate hike have sunk below 40%. For gold, the distinction matters.

Expectations of further tightening had lifted yields and the dollar while undermining demand from rate-sensitive Western investors. The inflation and labor data have instead strengthened the case for a pause, though policymakers remain constrained by headline inflation that was 3.4% higher than a year earlier, and 1.4% higher than the Fed’s target.

A More Supportive Environment

Yet, gold’s foundations extend beyond the Fed. Central banks and Asian buyers continued accumulating during the correction, helping absorb sales by Western money managers. 

The World Gold Council recorded around $3 billion of net inflows to physically backed gold exchange-traded funds, lifting their holdings to 4,068 tons. North American participation remained modest, and European funds mostly led the buying.

SPDR Gold Shares ETF (NYSE:GLD) is up 1.40% year-to-date.

Institutional buying supports the thesis from the Santiago Capital CEO, Brent Johnson. In his view, gold doesn’t depend on a collapse in the dollar or hyperinflation to rise. Reserve diversification, geopolitical insurance and physical demand can sustain the metal even as the dollar remains central to global finance.

The $4,500 Question

Still, fundamentals have delivered a rebound, not technical confirmation. Gold repeatedly found buyers below $4,000 during the selloff and has since converted the $4,200 area from resistance into support.

According to Saxo Bank’s Head of Commodity Strategy, Ola Hansen, the secondary support near $4,360 is the level to watch should the ongoing momentum fade.

Gold daily chart, Source: TradingView

The crucial level, however, is near $4,500 – where the declining 200-day moving average sits. A durable move above that level would break an important sequence of lower highs and shift attention to the 38.2% Fibonacci retracement near $4,585. The next target would be around $4,695, the 50% retracement of the January-to-July decline.

Failure at $4,500 would leave gold in a broader consolidation and revive focus on the $4,000-to-$3,960 support zone – where history has shown the demand is willing to defend the price.

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