Gold extended its rally early Thursday, climbing toward $3,380 and nearing levels not seen since May, as geopolitical risks in the Middle East and subdued U.S. inflation readings drove a flight to safety. Traders are bracing for another volatile session as attention shifts to today’s U.S. Producer Price Index (PPI) report and ongoing geopolitical tensions with Iran.
Risk appetite remains fragile after reports that Israel is prepared to launch a direct operation into Iran, prompting U.S. officials to assess potential retaliatory strikes against American assets in Iraq. The development has amplified market nervousness just days before a planned sixth round of U.S.-Iran nuclear talks, led by President Trump’s Middle East envoy, Steve Witkoff.
The bid into safe-haven assets, particularly gold, is also being fueled by weakening dollar momentum. The U.S. Dollar Index has slipped to a two-month low following a softer-than-expected May Consumer Price Index (CPI), which came in at 0.1% month-over-month and 2.4% annually both undershooting market forecasts. Core inflation also trailed estimates, reinforcing bets that the Federal Reserve could cut interest rates as early as September. Fed fund futures now price in a 62% probability of a 25-basis-point cut, up sharply from 52% just a day prior.
Meanwhile, market participants remain wary of shifting trade dynamics. President Trump hinted at flexibility regarding the July 8 deadline to finalize trade deals before the next wave of tariffs is triggered. China, in a countermove, has placed a six-month cap on rare-earth export licenses to U.S. manufacturers a decision that adds further stress to U.S. supply chains and weighs on the greenback’s near-term outlook.
The U.S. PPI data due later today could provide a near-term inflection point. Markets expect a 2.6% year-over-year increase in headline PPI for May, with core PPI seen rising 3.1%. A hotter print could curb further downside in the dollar and potentially cap gold’s advance, at least temporarily. But the metal’s broader bullish bias remains intact amid ongoing macro and geopolitical crosswinds.
Key Technical Levels to Watch:
- Resistance: A decisive daily close above $3,377 opens the path toward $3,400, followed by May’s high at $3,439.
- Support: Immediate downside is cushioned at $3,315, with stronger support at $3,297. A sustained break below that risks a pullback to $3,279 and ultimately $3,232 a level that could serve as the final defense for bulls.
Structural Drivers to Monitor:
- Escalating Israel-Iran tensions and the potential for military action.
- U.S. inflation trajectory and the Fed’s September policy outlook.
- Developments in global trade negotiations and retaliatory actions from China.
- Persistent central bank gold accumulation, with the ECB confirming gold’s rise as the second-largest global reserve holding after the U.S. dollar.
Gold is reasserting its role as the preferred hedge in an environment of elevated geopolitical risks and weakening U.S. macro signals. Unless the PPI report surprises to the upside or diplomatic breakthroughs occur, the metal’s momentum remains biased to the upside. Traders should stay vigilant and position accordingly, especially with inflation data, Fed speculation, and Middle East flashpoints all converging.