|

Gold edges lower below $4,350 on imminent Fed rate hike

  • Gold price drifts lower to around $4,340 in Monday’s early Asian session. 
  • US inflation persisted in August, raising prospects that the Fed will hike interest rates at its September meeting. 
  • Traders await the Fed interest rate decision on Wednesday. 

Gold price (XAU/USD) loses ground to near $4,340 during the early Asian trading hours on Monday. The precious metal remains under selling pressure as hotter-than-expected US inflation data raised prospects that the Federal Reserve (Fed) will hike interest rates later this week. 

The core US Consumer Price Index (CPI), which excludes food and energy costs, rose 0.3% MoM in August, compared to 0.2% in July, according to the Bureau of Labor Statistics on Friday. This figure came in above the market consensus of 0.2%. 

The latest inflation readings pile pressure on the US central bank to make its first rate hike in three years when it meets on Wednesday. Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.

Probability for a rate hike jumped to nearly 86.2%, up from 72% before the US PPI data, according to the CME FedWatch tool. 

The Fed interest rate decision will take center stage on Wednesday. Traders will take more cues from the Fed Chair Press Conference after the policy meeting. Any dovish comments from Fed policymakers could help limit gold’s losses in the near term. 

“While the markets appear to be placing their proverbial bets on a hike, it's likely that members of the FOMC won't be quite as unequivocal. The doves on the committee, of which there are many, are likely to argue the case that the dip in annual core inflation justifies patience. As a result, this data will probably increase uncertainty going into the Fed decision rather than decrease it,” said Kyle Rodda, Senior Financial Market Analyst at capital.com. 

Gold holds firm despite renewed energy upside and higher Fed hike odds

According to TD Securities, the yellow metal “has been able to hold support in the higher range, even as the market grapples with renewed energy upside and the near-term increase in Fed hike probabilities,” underscoring gold’s resilience within the precious metals complex despite shifting macro headwinds.

Chart Analysis XAU/USD

Technical Analysis: Gold retains a neutral tone in the near term

In the daily chart, XAU/USD consolidates in a neutral tone, holding just above the 100-day moving average (MA) at $4,332.30 while remaining capped beneath the Bollinger Bands’ 20-day simple moving average (SMA) middle band. This placement suggests a market caught between recovering trend support and overhead range resistance, with the Relative Strength Index (14) at 47.11 hinting at balanced momentum after the recent pullback.

On the topside, initial resistance is located at the Bollinger 20-day SMA middle band at $4,460, with a clearer bullish extension only opening if prices advance toward the upper Bollinger band at $4,680. On the downside, immediate support is offered by the 100-day MA at $4,330, while a deeper decline would expose the lower Bollinger band as the next key demand area around $4,238.07.

(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

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

More from Lallalit Srijandorn
Share:

Editor's Picks

AUD/USD edges higher above 0.7050 as hot CPI lifts RBA rate hike odds

The AUD/USD pair gathers strength to near 0.7055 during the Asian trading hours on Thursday. The Australian Dollar edges higher against the US Dollar as hotter inflation data bolsters expectations of Reserve Bank of Australia rate hikes. The US September Personal Consumption Expenditures inflation report will be in the spotlight later on Thursday.



USD/JPY retakes 158.00 as USD stalls the post-FOMC corrective slide

USD/JPY attracts some dip-buyers during the Asian session on Thursday, climbing back above 158.00 as the US Dollar reverses part of the post-FOMC pullback from a two-week high. Bulls, however, await key US macro data – the Advance Q3 GDP and the PCE Price Index – before positioning for further gains. Focus will then shift to the crucial BoJ policy update on Friday amid firming expectations for a December rate hike.

Gold weakens further below $4,050 amid Fed rate hike bets and Iran risks

Gold sticks to intraday losses below the $4,050 level heading into the European session ,and for now seems to have snapped a three-day winning streak to the weekly top set the previous day. The US Dollar attracts fresh buyers after Wednesday's post-FOMC corrective slide from a two-week high and is seen as a key factor weighing on the precious metal.

US GDP expected to grow at 3.2% in Q3

The United States Bureau of Economic Analysis is set to publish its preliminary estimate of the Gross Domestic Product for the July-September period on Thursday, with analysts expecting the data to show annualised growth at a solid 3.2%, a decent improvement from the 2.2% expansion recorded in the previous quarter. Markets brace for US growth and PCE data amid geopolitical jitters

European Central Bank is expected to hold interest rates despite high inflation pressures

The European Central Bank concludes its two-day monetary policy meeting on Thursday and will announce its decision at 13:15 GMT. The bank is widely expected to leave the interest rate on the Main Refinancing Operations and the Deposit Facility unchanged at 2.65% and 2.50%, respectively, after having raised both of them by 25 basis points in September.

Anthropic pledged $270 billion to Amazon, Google, and Microsoft. Here's who actually gets paid
Anthropic owes Amazon, Google, and Microsoft at least $269.4 billion for computing power, even if it uses less. All three sell its models and handle its billing, and Amazon and Google own stakes and lend it money, so they get paid regardless of how the IPO goes. The Dario Amodei-led Anthropic filed its initial public offering (IPO) on Monday, seeking a listing on the Nasdaq under the ticker ANT.