Gold remains depressed below $4,650 on firmer USD, Fed risks, Middle East tensions
- Gold attracts some sellers following an intraday rise to a fresh multi-month high on Tuesday.
- Fed rate-hike bets amid inflation risk and the Middle East crisis underpin the safe-haven USD.
- Traders now look to the US PCE data and Fed Chair Kevin Warsh’s speech for fresh impetus.
Gold (XAU/USD) remains on the back foot below $4,650 through the first half of the European session. However, the lack of follow-through selling warrants caution before positioning for an extension of the intraday retracement slide from the $4,700 neighborhood, or the highest level since May 14, touched earlier this Tuesday. The US Dollar (USD) is seen building on its recovery from a three-month low as inflation risks stemming from volatile energy prices keep bets for at least one interest rate hike by the US Federal Reserve (Fed) on the table. This, along with persistent geopolitical uncertainties, underpins the safe-haven Greenback and weighs on the commodity.
In the latest developments surrounding the Middle East crisis, Treasury Secretary Scott Bessent announced Monday that the US is launching a campaign to isolate Iran from the global economy. Bessent also warned that any country conducting business with Iran risks facing US sanctions. Iran's Supreme National Security Council secretary, Mohsen Rezaei, had said that the Islamic Republic would halt all oil exports through the Strait of Hormuz and anywhere else in the Persian Gulf if economic war continues. This keeps geopolitical risk premium in play and should support the Greenback.
Meanwhile, the initial downward push on US bond yields following the Treasury Department's expanded buyback strategy was short-lived amid concerns over the growing US national debt, which crossed $40 trillion. This has revived the so-called "debasement trade", which might continue to underpin demand for bullion as an alternative store of value. Traders might also refrain from placing aggressive bullish bets on the USD and opt to wait for more cues about the Fed's policy path amid shifting expectations toward an on-hold decision at the upcoming September 15-16 FOMC meeting.
Hence, the market focus will remain glued to the release of the US Personal Consumption Expenditures (PCE) Price Index on Wednesday. Adding to this, Fed Chair Kevin Warsh’s keynote address at the annual Jackson Hole Symposium on Friday will be scrutinized for more interest rate cues, which, in turn, will influence the USD and provide some meaningful impetus to the Gold price. In the meantime, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through selling before confirming that the XAU/USD pair has topped out and positioning for a further depreciation.
XAU/USD daily chart
Technical Analysis
The recent breakout through a confluence hurdle near the $4,500 psychological mark – comprising a technically significant 200-day Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the March-June decline – favors XAU/USD bulls. Moreover, the Moving Average Convergence Divergence (MACD) stays positive above the zero line, hinting that buying pressure is still dominant even as conditions look stretched.
Meanwhile, the Relative Strength Index (RSI) hovers in overbought territory near 71 and fails to assist the Gold price in building on intraday gains beyond the 50% retracement level. Nevertheless, momentum indicators remain constructive, suggesting that any corrective slide is more likely to be bought into and remain limited. Initial support is seen at the 200-day SMA and the 38.2% retracement confluence, ahead of $4,500, while a deeper pullback would expose the 23.6% Fibo. level around $4,294 as a more distant floor.
On the topside, immediate resistance emerges at the 50.0% retracement around $4,680.86, with additional hurdles at the 61.8% retracement near $4,853.70 and then the 78.6% level at about $5,099.77 ahead of the prior swing high around $5,413.22.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
