Gold bounces from weekly low on softer US Dollar, fading September Fed hike bets
- Gold rebounds from a fresh weekly low as the softer US Dollar lends support.
- Cooling inflation and weaker payrolls prompt traders to scale back Fed rate-hike bets.
- XAU/USD struggles to clear the 100-day SMA, with the $4,386-$4,455 region forming a key resistance zone.
Gold (XAU/USD) rebounds on Friday after opening the day in negative territory and falling to a fresh weekly low of $4,311. At the time of writing, the precious metal trades around $4,350, supported by a softer US Dollar (USD) and fading expectations of an imminent Federal Reserve (Fed) interest rate hike. The metal, however, remains below the two-month high of $4,449 touched on Thursday.
This week’s US Consumer Price Index (CPI) and Producer Price Index (PPI) releases showed that inflationary pressures are gradually easing. Meanwhile, weaker-than-expected July Nonfarm Payrolls (NFP) and sharp downward revisions to the previous two months' figures cast doubt on the recent strength of the labour market.
The softer run of US economic data has pushed front-end Treasury yields sharply lower and kept the US Dollar Index (DXY) pressured below 100, as traders trim bets on a September Fed rate hike. Attention now turns to US Retail Sales and preliminary Michigan Consumer Sentiment data due later on Friday.
Analysts at MUFG highlight that "the slowdown in private employment and wage growth in recent months alongside limited evidence of higher energy prices spilling over into core inflation since the US-Iran conflict started is providing more leeway for the Fed to leave rates on hold."
According to the CME FedWatch Tool, traders are now pricing in around a 70% chance that the Fed will keep borrowing costs unchanged in September.
This creates a supportive near-term backdrop for the non-yielding metal, but the inflation outlook is far from settled. Inflation is still running above the Fed’s 2% target, while the impact of the energy shock has not fully faded. Oil prices remain elevated as uncertainty over the reopening of the Strait of Hormuz drags on.
Longer-dated US Treasury yields also remain high, as future rate hikes cannot be ruled out if inflation picks up again. This should keep buyers cautious about chasing Gold higher.
Technical analysis: XAU/USD struggles to clear 100-day SMA
XAU/USD remains near recent highs but is struggling to secure a decisive break above the 100-day Simple Moving Average (SMA) at $4,386. The metal holds well above the 20-day SMA, which forms the Bollinger middle band at $4,173.
The Relative Strength Index (RSI) on the daily chart is around 62 and the Moving Average Convergence Divergence (MACD) indicator in positive territory suggests that bullish momentum is still firm enough to challenge the overhead barrier.
On the topside, the area between the 100-day SMA at $4,386 and the Bollinger upper band at $4,455 forms a strong resistance zone. A sustained break above this area could bring fresh bullish momentum.
On the downside, immediate support is seen at the Bollinger middle band around $4,173, ahead of the psychologically important $4,000 mark. A deeper slide would expose the Bollinger lower band near $3,891.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.