Gold slumps below $4,600 as attention turns to Jackson Hole Symposium
- Gold price declines below $4,600 in Friday’s early European session.
- US July PCE data fuels Fed rate hike bets; traders brace for Jackson Hole Symposium on Friday.
- Iran officials said they are preparing list of conditions to open Strait of Hormuz.
Gold price (XAU/USD) attracts some sellers below $4,600 during the early European trading hours on Friday. The precious metal retreats from a three-month high as in-line US inflation data has reinforced the possibility of further Federal Reserve (Fed) rate hikes. Traders await Fed Chair Kevin Warsh's speech at the Jackson Hole Economic Symposium on Friday for fresh impetus.
The core Personal Consumption Expenditures (PCE) Price Index inflation, the Fed's preferred inflation gauge, held steady at 3.3% YoY in July, the US Bureau of Economic Analysis (BEA) revealed on Wednesday. This figure came in line with market expectations. On a monthly basis, the headline PCE Price Index and the core PCE Price Index both rose by 0.2% in July.
Following the data release, the market significantly increased its bets on a September rate increase. According to the CME FedWatch Tool, the probability of a Fed rate hike in September rose to 40% from 36% before the data release. This, in turn, could weigh on the yellow metal. Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.
On the other hand, optimism for a reopening of the Strait of Hormuz amid diplomatic efforts involving Iran and Oman might ease oil-driven inflation concerns, capping the downside for gold.
Iran’s Security Chief Mohsen Rezaei said on Friday that Tehran is preparing a list of its conditions to open the Strait of Hormuz in response to a request by mediators, adding that conditions include ending the war in the region, per Reuters.
Gold sentiment seen as resilient even if Fed turns more hawkish
According to TD Securities, a shift in tone from Fed Chair Warsh remains a key risk for bullion, with the bank cautioning that “a more hawkish tone from Fed Chair Warsh would be a catalyst for some reversal in the yellow metal.” However, the strategists argue that “the bar is likely high to reverse the improved sentiment in precious metals,” suggesting that any policy surprise would need to be substantial to materially undermine the current constructive backdrop for gold.
XAU/USD daily chart
Technical Analysis: Gold price maintains a constructive outlook above the 100-day SMA
In the daily chart, XAU/USD holds well above its 100-day simple moving average (SMA) and the 20-day Bollinger middle band, keeping the near-term bias bullish despite the recent pullback from record highs. The Relative Strength Index (14) around 65 shows positive momentum but shy of extreme overbought, suggesting upside pressure persists, although the proximity of overbought territory hints that the advance could become more labored as price stretches further from underlying trend support.
On the topside, immediate resistance is located at the upper boundary of Bollinger band near $4,760, where previous upside extensions could face renewed selling interest. On the downside, initial support is seen around the current area near $4,585, with stronger demand anticipated at the middle Bollinger Band at $4,415 and the 100-day SMA at $4,375; a deeper slide toward the lower limit of Bollinger band at $4,073.52 would only come into view if those trend supports give way, which for now looks less likely while daily momentum remains constructive.
(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
FXStreet
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.
