Gold (XAU/USD) is struggling to hold above the $3,960 level. At the same time, the overall bearish fundamental backdrop suggests that the path of least resistance for the precious metal remains to the downside.

Oil prices have risen by more than 10% over the past week as renewed hostilities between the United States and Iran have increased the risk of supply disruptions, revived inflation concerns, and strengthened expectations that the Federal Reserve will keep interest rates higher for longer. This, in turn, supports the US dollar and limits gold's recovery potential.The conflict between the United States and Iran has entered a more dangerous phase. On Thursday, both sides exchanged new strikes, while Tehran reportedly expanded its military operations beyond its traditional targets. Officials in Bandar Abbas, southern Iran, reported damage to civilian infrastructure, including power plants and a railway station. In response, Iran launched missile and drone strikes against US allies in the Persian Gulf.

Additional tensions persist in the Strait of Hormuz, where the United States has intercepted commercial vessels attempting to breach Iran's maritime blockade. At the same time, Iran's Islamic Revolutionary Guard Corps threatened to expand the conflict by targeting additional regional energy supply routes. Reuters also reported that Iran had asked Yemen's Houthi movement to be prepared to block the Red Sea oil shipping route.

These developments have helped keep oil prices near their monthly highs while intensifying concerns about energy-driven inflation.The US dollar is also receiving additional support from strong US macroeconomic data and hawkish comments from Federal Reserve officials, reinforcing expectations of at least one more interest rate increase before the end of the year.

The US Department of Labor reported that initial jobless claims for the week ending July 11 fell to 208,000 on a seasonally adjusted basis. The reading exceeded market expectations and confirmed the resilience of the US labor market.

Meanwhile, the Philadelphia Fed Manufacturing Index rose from 10.3 to 41.4 in July, reaching its highest level since November 2021 and indicating a sharp acceleration in regional manufacturing activity. Additional data also showed that both price indicators continue to signal rising inflationary pressures.

Dallas Federal Reserve President Lorie Logan stated that this week's favorable consumer and producer inflation data are still insufficient to conclude that US households are experiencing meaningful relief. She reiterated her support for a moderate increase in interest rates to continue the fight against inflation, which, in her view, has persisted for the past five years.

Federal Reserve Vice Chair Philip Jefferson also stated that he would be prepared to support additional rate hikes if inflation does not begin to decline in the near future. According to the CME Group FedWatch Tool, traders are currently pricing in nearly a 75% probability of a 25-basis-point Federal Reserve rate hike by December.

Taken together, these factors continue to support US dollar bulls and suggest that any further recovery in gold prices is likely to attract renewed selling pressure.

To identify better trading opportunities today, traders should focus on Friday's US economic releases, including Building Permits, Housing Starts, Industrial Production, and the preliminary University of Michigan Consumer Sentiment Index and Inflation Expectations.

These reports, together with any comments from Federal Reserve officials, are expected to influence US dollar price action and are likely to keep pressure on gold, which risks posting a second consecutive weekly decline.

From a technical perspective, XAU/USD remains under pressure. The first resistance level is the psychological $4,000 mark, followed by the 20-day Simple Moving Average (SMA). Initial support is located at $3,960, below which lies the yearly low. Momentum indicators remain in negative territory, confirming that sellers continue to hold the advantage. The path of least resistance remains to the downside.