Gold recovers intraday losses to sub-$4,400 as USD slumps despite Fed rate hike bets
- Gold trades with a negative bias for the second straight day, though the downside remains limited.
- The upbeat US NFP report boosts Fed hike bets, underpinning the USD and weighing on the bullion.
- Geopolitical risks further benefit the safe-haven USD as the focus now shifts to US inflation figures.
Gold (XAU/USD) shows some resilience below the $4,400 mark and recovers intraday losses during the first half of the European session on Monday. Any meaningful upside, however, seems limited as traders might opt to wait on the sidelines ahead of the latest US inflation figures, due later this week.
The popularly known US Nonfarm Payrolls (NFP) report showed that the economy added 162K new jobs in August, surpassing consensus estimates for a reading of 56K by a wide margin. Other details revealed that the Unemployment Rate was unchanged at 4.1%, as expected, while annual wage inflation, as measured by the change in average hourly earnings, fell to 3.1% from 3.2%. This comes on top of inflation risks stemming from higher energy prices and lifted bets on an interest rate hike by the US Federal Reserve (Fed) later this month. The hawkish outlook, in turn, is seen acting as a tailwind for the US Dollar (USD) and undermining the non-yielding Gold.
US labor backdrop seen as solid and improving
According to TD Securities, the latest data reinforces the view that the US labor market remains resilient. They argue that, when the official figures are assessed alongside a “private-sector that is looking up from a jobs perspective,” it “suggests that the labor market is in a good place, and possibly getting better.”
Meanwhile, Fed Governor Christopher Waller said last Thursday that he was inclined to argue in favor of keeping rates steady if upcoming data confirmed inflation pressures were cooling. This, along with a strong follow-through buying around the Japanese Yen (JPY), weighs on the USD, which, in turn, act as a tailwind for the precious metal. Traders now look to US Producer Price Index (PPI) and the US Consumer Price Index (CPI), due to be published on Thursday and Friday, respectively. The crucial data will be looked at for more cues about the Fed's future policy path. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide a fresh impetus to the Gold price.
In the meantime, the widening US-Iran confrontation in the Strait of Hormuz keeps the geopolitical risk premium in play and underpins the safe-haven buck. US forces struck three Iranian oil tankers on Saturday, while Iran's Islamic Revolutionary Guard Corps said it had targeted six vessels in retaliation. The tit-for-tat attacks have added to concerns over the security of shipping through the strategic waterway and intensified fears of a prolonged disruption to supplies from the Middle East, supporting oil prices and fueling inflation fears. This favors USD bulls, warranting caution before placing fresh bullish bets on the Gold price and positioning for any meaningful upside.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair sits comfortably above the 200-day Exponential Moving Average (EMA) at around $4,318 and the key 50% retracement of the July-August upswing, at roughly $4,324. This positioning suggests the broader uptrend remains intact, even as momentum indicators have cooled. In fact, the Moving Average Convergence Divergence (MACD) has slipped into negative territory, while the Relative Strength Index (RSI) hovers near 51, hinting at a consolidative phase rather than outright exhaustion of the bullish structure.
On the topside, immediate resistance emerges at the 38.2% Fibonacci retracement near $4,411, with a break above this pivot exposing the 23.6% retracement around $4,519 ahead of the recent cycle high region near $4,693. On the downside, initial support is seen at the 50% retracement at $4,324, closely backed by the 200-day EMA near $4,318. A deeper pullback would look toward the 61.8% level at about $4,237 and the 78.6% retracement near $4,113, where buyers would be expected to reassert the broader bullish bias.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for 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.
