Gold bounces off one-week low on soft USD; upside seems capped ahead of US inflation data
- Gold attracts some buyers after touching a one-week low during the Asian session on Wednesday.
- The USD remains depressed amid the BoJ-inspired JPY rally, lending some support to the commodity.
- Fed hike bets and geopolitical risks limit USD losses, capping the bullion ahead of US inflation data.
Gold (XAU/USD) rebounds from a one-week low, around the $4,340 area touched during the Asian session on Wednesday and, for now, seems to have snapped a three-day losing streak. The Bank of Japan (BoJ)-inspired rally in the Japanese Yen (JPY) keeps the US Dollar (USD) depressed near its lowest level in over two weeks, which, in turn, is seen benefiting the commodity. That said, hawkish central bank expectations might keep a lid on any meaningful appreciation for the non-yielding bullion.
A 25 basis point (bps) rate hike by the European Central Bank (ECB) on Thursday is considered a done deal. Moreover, traders have fully priced in a BoJ rate hike at the September 17–18 meeting. The Reserve Bank of Australia (RBA) is also weighing a potential rate increase later this month. Meanwhile, the better-than-expected US Nonfarm Payrolls (NFP) report revived bets for a September interest rate hike by the US Federal Reserve (Fed) amid inflation risks stemming from persistently higher energy prices.
BNY sees September Fed hike as imminent after strong US jobs data
Strategists at BNY argue that the latest labour market data have firmly re‑anchored expectations for further Fed tightening. They note that “after an exceptionally strong jobs print on Friday, even Governor Christopher Waller’s somewhat equivocal comments on Thursday don’t seem to be enough to change our view that a rate hike is imminent.” According to BNY, “after dropping somewhat last Thursday on the basis of Waller’s remarks, the expectation for a September hike is back to over 60%. We would be surprised to not get one.”
Adding to this, escalating US-Iran tensions could help limit deeper losses for the safe-haven USD and cap gold prices. In the latest developments surrounding the Middle East crisis, the US attacked Iranian oil tankers in the Gulf of Oman and near Kharg Island. Iran responded by firing over 30 missiles at US forces stationed at the Al Azraq base in Jordan. Moreover, Iran’s Islamic Revolutionary Guard Corps (IRGC) warned that ships in Kuwaiti and Bahraini ports hosting US forces could also be targeted.
This keeps the geopolitical risk premium in play, lifting crude oil prices to a three-month high and fueling inflation fears. This underpins prospects for Fed tightening, which should act as a tailwind for the USD and keep a lid on gold prices. Traders might also await the release of US inflation figures – the Producer Price Index (PPI) and the Consumer Price Index (CPI) on Thursday and Friday, respectively – for cues about the Fed's policy path before placing fresh directional bets on the XAU/USD pair.
XAU/USD 4-hour chart
Technical Analysis
The precious metal finds support near the $4,345-$4,340 confluence – comprising the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 50.0% retracement level of the July-August upswing. This should act as a key pivotal point. Meanwhile, the daily Relative Strength Index (RSI) is hovering near a neutral 42, and the Moving Average Convergence Divergence (MACD) is in negative territory, hinting that the latest bounce is more a stabilization above trend support than an impulsive bullish leg.
The technical setup, in turn, suggests that the upside momentum remains fragile and is likely to face immediate resistance at the 38.2% Fibonacci retracement at $4,427. However, a break higher would expose the 23.6% retracement barrier near $4,529. On the downside, initial support is aligned near the 200-period SMA around $4,352.88, followed by the 50.0% retracement at $4,344. A clear drop below this band would open the door toward deeper Fibonacci supports at $4,262 and then $4,144.
(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.
