Gold sticks to modest losses below $4,450 on Fed hike bets, firm USD
- Gold meets with a fresh supply on Tuesday amid rising bets for a Fed rate hike in September.
- Hawkish Fed expectations, along with escalating US-Iran tensions, benefit the safe-haven USD.
- Traders look to the US data, scheduled at the start of a new month, including the NFP report.
Gold (XAU/USD) struggles to capitalize on the previous day's bounce from sub-$4,400 levels, or a one-and-a-half-week low, and attracts fresh sellers during the Asian session on Tuesday. US Federal Reserve (Fed) Chair Kevin Warsh's comments last Friday lifted market bets for an imminent interest rate hike, which, in turn, is seen as undermining the non-yielding yellow metal.
Warsh delivered a surprisingly hawkish debut speech at the Jackson Hole Symposium and signaled that the central bank may consider raising interest rates if inflation does not slow down significantly. Adding to this, rising energy prices due to escalating US-Iran tensions have revived fears of persistent inflation and increased bets on a potential interest rate hike. According to CME Group's FedWatch Tool, traders are now pricing in around a 65% chance that the Fed will raise borrowing costs at the upcoming policy meeting on September 15-16. This, along with geopolitical uncertainties, helps the safe-haven US Dollar (USD) regain positive traction following Monday's slide and further weighs on the Gold price.
In the latest developments surrounding the Middle East conflict, US forces struck two rocket launchers on Iran’s Larak Island in the Strait of Hormuz on Sunday. This was the first US strike since late July, prompting an Iranian counterattack on American air bases in Jordan. Iran also said on Monday it had attacked the United Arab Emirates' Al Minhad Air Base with drones. Meanwhile, US President Donald Trump warned that further military action remained possible and threatened to hit Iran "hard". This keeps the geopolitical risk premium in play, which continues to lend some support to crude oil prices and the safe-haven USD.
Traders, however, might refrain from placing aggressive directional bets and opt to wait for important US macro data, scheduled at the start of a new month. A rather busy week kicks off with the release of the US ISM Manufacturing PMI and JOLTS Job Openings, due later today. The focus, however, will remain on the closely watched US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday. In the meantime, the aforementioned fundamental backdrop favors USD bulls and suggests that the path of least resistance for the Gold price is to the downside.
XAU/USD 4-hour chart
Technical Analysis
Following last week's breakdown below the 100-period Simple Moving Average (SMA), XAU/USD bears now await acceptance below the 38.2% Fibonacci retracement level of the upswing from the late July low before positioning for further losses. In the meantime, the Moving Average Convergence Divergence (MACD) indicator remains below zero, with its latest negative reading, hinting at persistent downside pressure. The Relative Strength Index (RSI) at 34.80 sits close to oversold territory, suggesting that while sellers are in control, the scope for additional aggressive losses could be increasingly constrained.
On the topside, initial resistance aligns at the 100-period SMA around $4,481, ahead of the 23.6% Fibo. retracement at $4,532, with a retest of the cycle high region near $4,697 likely requiring a sustained break above these barriers. On the downside, first support is seen at the 38.2% retracement around $4,430, followed by the 50.0% level at $4,348 and the 61.8% retracement at $4,266. A deeper slide would expose the 78.6% level at $4,149 before the broader bullish cycle floor near $3,999.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
