Gold tests $4,500 as US Dollar and yields retreat, Fed hike bets ease after Waller remarks
- Gold rebounds from a nearly four-week low as the Greenback loses ground.
- Fed rate expectations remain the key focus ahead of the NFP report due on Friday.
- Technically, immediate resistance is located at $4,500, followed by the 200-day SMA at $4,533.
Gold (XAU/USD) extends its rebound on Thursday after slipping below $4,300 to a nearly four-week low on the previous day. A sharp rally in the Japanese Yen (JPY) weighs on the US Dollar (USD), while a pullback in US Treasury yields provides additional support to the precious metal. At the time of writing, XAU/USD trades around $4,509, up 2.78% on the day.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.00, near a one-week low, after reaching 99.86 on Wednesday, its highest level since August 14. The benchmark 10-year US Treasury yield trades around 4.75%, falling for the second consecutive day after reaching 4.81%, its highest level since October 2023.
US economic data offers mixed signals. Initial Jobless Claims increased to 206K in the week ending August 29, slightly above the market forecast of 205K and the previous reading of 204K. Meanwhile, the August ISM Services Purchasing Managers' Index (PMI) rose to 55.4 from 54.1 in July, beating expectations of 54.3.
A weaker US Dollar is generally positive for Gold. However, several near-term headwinds could make it difficult for the yellow metal to sustain its recovery, even though the longer-term outlook stays supported by strong central bank purchases and investment demand.
Government bond yields have climbed to multi-year highs across major economies as fiscal and inflation concerns deepen. Higher Oil prices linked to the war in the Middle East are also adding to inflation expectations. Elevated yields increase the opportunity cost of holding non-yielding assets such as Gold.
Expectations of Federal Reserve (Fed) rate hikes pose an additional challenge, as Gold typically performs better when interest rates are low. However, dovish comments from Fed Governor Christopher Waller keep traders cautious over the possibility of a September move.
Waller said he is “finally seeing some signs of disinflation in recent data” and that the “rate decision in September hinges on August inflation.” He added that he would support keeping interest rates unchanged if the August data confirm recent progress.
According to the CME FedWatch Tool, the probability of a rate hike at the Fed’s September 15-16 meeting has fallen to around 48% from 63% a day earlier. Traders now await Friday’s Nonfarm Payrolls (NFP) report for fresh clues on the Fed’s monetary policy outlook.
Technical analysis: XAU/USD approaches $4,500 as buyers regain ground
XAU/USD holds above the 50-day and 100-day Simple Moving Averages (SMAs), keeping the near-term outlook constructive. The Moving Average Convergence Divergence (MACD) indicator is still below zero and in negative territory, hinting that bullish momentum is tentative despite the spot price trading well above underlying trend supports. The Relative Strength Index (RSI) on the daily chart is at 55 and is mildly positive, reinforcing a consolidative bullish tone rather than an overextended rally.
On the upside, immediate resistance is located at the horizontal level of $4,500, followed by the 200-day SMA at $4,533 and the $4,700 mark. On the downside, the psychological level of $4,400 offers initial support ahead of the 100-day SMA at $4,357 and the 50-day SMA at $4,231. A deeper decline could bring the horizontal support level of $4,000 into focus.
(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.
Author
Vishal Chaturvedi
FXStreet
I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.
