Gold's (XAU/USD) Whipsaw Price Action a Sign that Bulls are Back at the Table. $3400/oz Up Next?

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Most Read: S&P 500 shows a decline after the US Services PMI miss

Gold prices have seen whipsaw price action today with a $30 drop being wiped away after the US open. Part of this could be down to another poor US data point which will only add to rate cut bets moving forward.

The US ISM Services PMI dropped to 50.1 in July 2025 from 50.8 in June, falling short of the expected 51.5. This shows the services sector barely grew, with seasonal and weather issues affecting business. There was a slowdown in business activity (52.6 vs 54.2), new orders (50.3 vs 51.3), and inventories (51.8 vs 52.7).

Meanwhile, price pressures increased to their highest level since October 2022 (69.9 vs 67.5), with many survey participants highlighting the impact of tariffs, especially on commodities.

Gold prices had already been on a recovery from a daily low around $3349 before the data further boosted the recovery.

Gold Prices Moving Forward - Federal Reserve Policy & Rate Cut Expectations

Golds looked on course for a potential correction last week before the US jobs data. The picture since then has changed dramatically however, and this underscores the age old adage, ‘trade what you see, not what you think’.

The most significant change has come in the form of rate cut expectations from the US Federal Reserve. Ahead of the jobs data on Friday last week, markets were still split around the 50-50 mark on a potential rate cut in September following the Fed meeting on Wednesday.

However, as of this morning the CME FedWatch Tool reflected a high 88% probability of such a cut at the upcoming monetary policy meeting in September.

Source: CME FedWatch Tool

The jobs data has raised hopes in the market for two or even three interest rate cuts by the end of the year, with the first expected in September and the second in October.

Even cautious comments from Federal Reserve officials were seen as signs that rate cuts might be coming. San Francisco Fed President Mary Daly urged caution about expecting aggressive rate cuts, saying the job market wasn’t "too weak" and suggesting the Fed could wait a bit longer. However, she also mentioned that the Fed "can’t wait forever" and downplayed the idea that tariffs were causing long-term inflation. Markets took her comments as a sign that the Fed might still cut rates in September.

This strong belief in upcoming rate cuts is helping support gold prices. Lower interest rates make gold more attractive because it doesn’t pay interest, so the cost of holding it becomes less of a concern.

Looking ahead, the next big catalyst which could shape both Fed rate cut expectations and have a material impact on Gold is likely to be the US CPI data. A strong CPI print would likely trigger a significant re-evaluation of its bullish trajectory, whereas other data points might only cause minor fluctuations.

Technical Analysis - Gold (XAU/USD)

From a technical standpoint, Gold monthly candle close for July closed as a massive shooting star which hints at further downside ahead.

This also marked the first bearish monthly close since December 2024 and could be a sing of the shift in momentum between buyers and sellers.

However, price action since Friday has left a potential deeper pullback at risk. On a monthly chart, a candle close above the 3439 handle will be needed to invalidate the setup and for this we will have to wait the rest of the month.

Looking at a more near-term perspective, let us look at the daily timeframe. Here we can see the recent bullish move which is approaching the most recent swing high around 3431.

A daily candle close above this level will invalidate the bearish setup on the daily timeframe and put bulls firmly in control.

Given that tariffs are now largely set and implementation is largely what remains, the chance that we enter a period of consolidation is shrinking.

This hints that a daily candle close above the 3431 may lead to more bullish momentum.

Gold (XAU/USD) Daily Chart, August 5, 2025

Source: TradingView (click to enlarge)

Client Sentiment Data - XAU/USD

Looking at OANDA client sentiment data and market participants are Long on Gold with 55% of traders net-long. I prefer to take a contrarian view toward crowd sentiment, however with a 55-45 split this is rather too close to draw any conclusions just yet.

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