• Gold tumbles as Middle East tensions keep July Oil gains near 13%.
• Solid Retail Sales and claims reinforce resilient US economy.
• Logan and Schmid comments keep Fed tightening risks alive.

Gold price drops over 1.80% as tensions between the US and Iran fuel fears of a possible Oil supply disruption, driving energy prices higher and potentially triggering another round of inflation. The XAU/USD trades at $3,994.

XAU/USD drops as energy risks lift Dollar and yields

The effects of the Middle East conflict are well reflected by the strength of the US Dollar. The Greenback is up some 0.24%, as measured by the US Dollar Index (DXY). The DXY, which tracks the buck’s value against its peers, is at 100.74, still shy of revisiting the 101.00 mark.

The US currency appreciates due to its positive correlation with the West Texas Intermediate (WTI) Oil price, which despite trading modestly lower during the day is up over 13% in July. This heightens speculation that the US Federal Reserve (Fed) could raise interest rates later this year.

US economic data was also positive during the day with Retail Sales expanding by 0.2% MoM in June, as expected, but below May’s 1% increase — driven mostly by higher gasoline prices. Control Group Retail Sales, used primarily in calculating the Gross Domestic Product (GDP), slowed from 0.8% to 0.5% as expected.

US jobs data was also solid, as Initial Jobless Claims for the week ending July 11 came at 208K, beneath forecasts of a 217K increase. The Fed’s Beige Book acknowledged that the labour market is strong, with some districts showing “modest, moderate or solid gains.”

US Treasury yields are drifting higher, with the US 10-year T-note rising by nearly 3 basis points (bps) to 4.577%.

Comments by Fed Regional Bank Presidents Lorie Logan and Jeffrey Schmid revealed that both lean hawkish on the Federal Open Market Committee (FOMC). Logan from the Dallas Fed calls for a modestly higher policy rate to better balance the outlook and risks. Meanwhile, the Kansas City Fed's Schmid said that the labour market seems to be roughly stable, but that he remains concerned as “inflation is proving persistent across a broad selection of goods and services.”

Money markets expect the Fed to hold rates unchanged at the July meeting, with odds of a hold at 73%. However, the chances for an October rate hike remain high, at 57%, according to Prime Terminal data.

XAU/USD technical outlook: Gold’s downtrend extends, eyes on $3,900

Gold’s trend remains bearish, reaching a new 13-day low of $3,974, which if decisively cleared opens the door for a move toward the year-to-date low of $3,941. On further weakness, bears could drive XAU to test the $3,900 milestone before challenging the October 28, 2025 swing low at $3,886.

On the other hand, for a bullish reversal Bullion must clear a downslope resistance trendline between $4,125 and $4,175. Once cleared, a move to test the 50-day Simple Moving Average (SMA) at $4,305 is on the cards. Overhead lies the 200-day SMA at $4,495, which once hurdled clears the path to $4,500.