Gold is testing the $4,300 level as the corrective downside extends into a second day early Friday. Traders remain focused on Middle East developments, Oil price action, and US Federal Reserve (Fed) interest rate expectations before placing fresh positional bets.
Gold: Dip-buying likely to emerge
Gold’s pullback comes on the back of profit-taking, following a rally spurred by growing doubts over a September Fed rate hike, particularly after unimpressive Consumer Price Index (CPI) and Producer Price Index (PPI) data.
The closely watched core annual CPI also matched expectations, increasing by 2.5% in July. Meanwhile, the monthly core CPI rose by 0.2% in the same period, following a flat reading in June. Meanwhile, the flat PPI reading for final demand last month followed a revised 0.1% drop in June.
Benign inflation readings, combined with the latest less-hawkish speeches from Fed policymakers, seem to have weighed heavily on imminent Fed rate-hike bets, with markets now pricing in only a 35% chance that the Fed will hike rates next month, from about 55% seen a week ago, according to the CME Group’s FedWatch Tool.
According to TD Securities, the interest-rate backdrop remains constructive for bullion, with a Fed “likely to remain on hold, despite upside in energy prices” expected to leave “the yellow metal well-supported in the higher range.” The bank suggests that the combination of steady policy and firmer input costs should help sustain gold’s recent resilience within this elevated trading band.
The main driver behind Gold’s correction could likely be the surge in US 30-year Treasury bond yields and US-Iran geopolitical tensions over the Strait of Hormuz.
Late Thursday, US 30-year Treasury yield topped 5.2%, hitting the highest level since 2001, following the US government’s monthly auction.
Meanwhile, the United Arab Emirates (UAE) reported on Thursday that Iran attacked two of its vessels as they transited the Strait of Hormuz, as a senior Islamic Revolutionary Guards Corps (IRGC) official, Hossein Taeb, reaffirmed that the Strait of Hormuz is “under Iran’s control and management”.
US Treasury Secretary Scott Bessent warned early Friday that Washington is going to apply measures that have “never been seen” on Iran.
That being said, Gold is likely to attract dip-buying as Oil prices are on a three-day losing streak amid a grim global demand outlook. Fading Fed rate hike expectations will also continue to lend support to buyers amid a bullish technical setup on the daily chart.
Another factor supporting Gold is a Reuters report that “Venezuelan authorities plan to focus on reconstruction efforts and recovering gold reserves worth an estimated $4 billion held in the Bank of England’s underground vaults.”
The focus will now remain on the University of Michigan (UoM) preliminary Consumer Sentiment and Inflation Expectations data as an eventful week draws to an end.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,315.03. The metal consolidates between its underlying short-term demand and overhead medium-term supply, as price holds above the 21-day and 50-day simple moving averages (SMAs) at $4,164.38 and $4,145.23, but remains capped below the 100-day SMA at $4,386.28. The Relative Strength Index (14) at 58.78 leans bullish without being overbought, suggesting modest upside pressure while the broader trend tone stays neutral beneath the 200-day SMA at $4,504.32.
On the topside, initial resistance appears at the 100-day SMA at $4,386.28, ahead of the longer-term barrier defined by the 200-day SMA near $4,504.32. On the downside, immediate support is seen at the 21-day SMA at $4,164.38, followed closely by the 50-day SMA at $4,145.23, a short-term cluster that would need to give way to revive a deeper corrective phase.
(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.
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