Gold remains stuck between two key averages ahead of the US inflation test
- Gold builds on the rebound from a weekly low near $4,350 in Asia on Thursday, resisting above $4,400.
- US Dollar struggles amid surging Japanese Yen, which offsets hawkish Fed bets and Mideast woes.
- Gold bounces off 50-day SMA but remains below 21-day SMA; RSI is still bullish.
Gold is building on the previous recovery from one-week lows near $4,350 early Thursday, stretching beyond $4,400. Gold buyers now look forward to the US Producer Price Index (PPI) and Consumer Price Index (CPI) data due Thursday and Friday, respectively, for a sustained turnaround.
Gold recaptures $4,400, awaits US inflation
Gold is finding continued support from the United States (US) Treasury Department’s measure to rescue the bond market.
The Treasury Department said Wednesday it will raise its bond buybacks to up to $6 billion for an operation due for Thursday. Future operations will be at least $4 billion.
Despite the announcement, US Treasury bond yields rose further but were volatile, with long-dated securities increasing as much as 5 basis points each before easing.
However, the US Treasury’s intervention, aimed at keeping bond markets functioning, was enough to revive buying interest in the non-yielding bullion.
Gold also takes advantage of growing fiscal tensions in the US as longer-dated Treasury yields continue their northward trajectory, which fails to impress US Dollar (USD buyers.
Further, the Greenback also faces headwinds from renewed expectations that the Federal Reserve (Fed) will hold key interest rates steady at its monetary policy meeting next week.
“About 70% of economists, 65 of 93, in the September 4-9 Reuters poll expect the Federal Funds Rate to remain in the 3.50%-3.75% range next week. That reading is down from 90% in August,” per Reuters.
Gold appears a clear winner here, sustaining its recovery momentum at the expense of the USD.
However, rising Oil prices amid widening Middle East conflict could temper Gold’s latest move higher. Therefore, Gold traders eagerly await the US inflation readings to determine whether the energy-driven inflation impact is substantial enough for the Fed to raise rates next week.
The headline annual PPI is set to rise by 5.3% in August versus 4.7% in July, while core inflation is seen picking up to 4.6% in the same period from 4.2% prior.
According to TD Securities, precious metals are effectively in a holding pattern as markets look to upcoming US inflation figures, with the bank noting that “precious metals wait on inflation data.” Strategists point out that the complex “has been able to maintain strength, even as the market grapples with the near-term increase in Fed hike probabilities,” underscoring the resilience of gold in particular. TD Securities argues that “inflation data is the next big catalyst,” warning that “an upside surprise would embolden Fed pricing and weigh on the yellow metal,” whereas “less worrisome inflation could ultimately be the first catalyst to see the next wave of discretionary positioning start to enter the market.”
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,412.18. The metal holds a bullish near-term bias as price remains above the 50-day and 100-day simple moving averages (SMAs) at roughly $4,267 and $4,340, suggesting underlying dip-buying interest despite recent consolidation off the highs. However, the 21-day SMA near $4,463 acts as the first cap, while the 200-day SMA around $4,538 sits higher up as a broader trend hurdle. The Relative Strength Index (14) at about 51 is slightly above neutral, hinting at modest positive momentum rather than an overextended move.
On the topside, immediate resistance is located at the 21-day SMA around $4,463, with the 200-day SMA near $4,538 acting as a secondary barrier if buyers regain traction. On the downside, initial support is seen at the 100-day SMA close to $4,340, with additional protection from the 50-day SMA near $4,267, where a deeper pullback would be expected to attract fresh demand to maintain the prevailing constructive structure.
(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
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
