Gold holds steady around $4,650 as traders look to US PCE for Fed rate cues
- Gold is seen consolidating in a range as bulls keenly await the release of the US PCE data.
- Fading Fed hike bets and sliding US bond yields weigh on the USD, supporting the bullion.
- The bullish technical setup suggests that the path of least resistance remains to the upside.
Gold (XAU/USD) extends its two-way price moves for the second straight day and trades above $4,650 during the Asian session on Wednesday. The commodity remains within striking distance of its highest level since May 14 as traders keenly await the release of the US Personal Consumption Expenditures (PCE) Price Index for some meaningful impetus. Investors this week will also scrutinize Federal Reserve (Fed) Chair Kevin Warsh's scheduled speech at the Jackson Hole Symposium for more cues about the interest rate path. The outlook, in turn, will drive the US Dollar (USD) and the non-yielding yellow metal.
In the meantime, expectations have shifted toward a policy hold at the upcoming September 15–16 FOMC meeting in the wake of cooling price pressures and a sluggish labor market. Moreover, the US Treasury's buyback strategy leads to a further decline in US bond yields. Meanwhile, two senior officials indicated that the Treasury could use its near $1 trillion General Account to fund its recently announced plans to increase buybacks of longer-term bonds. Furthermore, positive developments surrounding the Middle East crisis weigh on crude oil prices, easing inflation fears and exerting additional pressure on US bond yields. This keeps USD bulls on the defensive and acts as a tailwind for the Gold price.
Crude oil prices dropped to a nearly two-week low after Iran said that it had restarted talks with Oman to manage commercial shipping traffic through the Strait of Hormuz. The countries said they had discussed a joint temporary navigational corridor through the strategic waterway. Adding to this, the US offered Iran sanctions relief and an end to the naval blockade in exchange for reopening the Strait and halting attacks carried out by its regional proxies. This revived hopes for a diplomatic resolution to end the US-Iran war, further denting the Greenback's reserve currency status and supporting the Gold price. Bulls, however, await a move beyond $4,700 before placing fresh bets on the XAU/USD pair.
XAU/USD daily chart
Technical Analysis
The recent breakout through the $4,500 psychological mark confluence hurdle – comprising the 200-day Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the March-June decline – was seen as a key trigger for XAU/USD bulls. The subsequent move up, however, struggles to find acceptance above the 50% retracement level, warranting some caution before positioning for any further gains.
Meanwhile, the Relative Strength Index (14) near 72 signals overbought conditions and hints that upside momentum, although strong, could be vulnerable to consolidation. The Moving Average Convergence Divergence (MACD) indicator (12, 26, 9) stays in positive territory, reinforcing the constructive tone despite stretched momentum. Nevertheless, XAU/USD bulls might still wait for a move above $4,700.
A sustained break above the said handle would open the way toward the 61.8% level at $4,856, the 78.6% retracement at $5,104, and the cycle high area around $5,421. On the downside, initial support is seen at the 200-day SMA at $4,522 and the nearby 38.2% Fibo. retracement at $4,508, with deeper pullbacks likely targeting the 23.6% retracement at $4,292 and the structural floor anchored near $3,944.
(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.