Gold rally stalls near resistance for third month and is ready to reverse downward

Looking at the daily timeframe, it becomes clear that gold prices have been diverging from the RSI oscillator since spring 2024. Springtime 2025 has also paved the way for the indicator to undergo a steep drop. No new highs have been reached since then, and $3,400 has become a strong resistance level for the bullion. Bulls have stretched to the limit, but they are still attempting to surpass the aforementioned threshold. Expectations of further gold rallies are strengthened by more rate cuts by the Federal Reserve (Fed) to come into play in the near future. Right now, markets are pricing in a new 25-basis-point rate reduction in September. Such a scenario would bring the greenback down and push gold quotes higher. 

However, the situation is not so black-and-white.

The US Bureau of Labor Statistics is set to release July's Consumer Price Index (CPI) data tomorrow. Investors predict that annual inflation will rise to 2.8% (up from 2.7% in June), with the core CPI projected to hike by 0.3% month-on-month. Recent comments from Fed officials suggest caution regarding monetary policy. San Francisco Fed President Mary Daly emphasised the risks of acting too soon without a clear economic assessment, while Atlanta Fed Chairman Raphael Bostic warned that mounting price pressures over the next six to twelve months could complicate the regulator's decision-making process. A stronger-than-expected CPI reading could reinforce expectations that the Fed will hold rates steady in September. This scenario may push US Treasury yields higher, bolstering the American dollar and exerting downward pressure on XAUUSD.

The final recommendation is to buy gold if tomorrow's year-on-year inflation data is greater than 2.8%.

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