Gold bounces from weekly low on softer US Dollar, fading September Fed hike bets
Gold (XAU/USD) rebounds on Friday after opening the day in negative territory and falling to a fresh weekly low of $4,311. At the time of writing, the precious metal trades around $4,350, supported by a softer US Dollar (USD) and fading expectations of an imminent Federal Reserve (Fed) interest rate hike. The metal, however, remains below the two-month high of $4,449 touched on Thursday.
This week’s US Consumer Price Index (CPI) and Producer Price Index (PPI) releases showed that inflationary pressures are gradually easing. Meanwhile, weaker-than-expected July Nonfarm Payrolls (NFP) and sharp downward revisions to the previous two months' figures cast doubt on the recent strength of the labour market.
The softer run of US economic data has pushed front-end Treasury yields sharply lower and kept the US Dollar Index (DXY) pressured below 100, as traders trim bets on a September Fed rate hike. Attention now turns to US Retail Sales and preliminary Michigan Consumer Sentiment data due later on Friday.
Analysts at MUFG highlight that "the slowdown in private employment and wage growth in recent months alongside limited evidence of higher energy prices spilling over into core inflation since the US-Iran conflict started is providing more leeway for the Fed to leave rates on hold."
According to the CME FedWatch Tool, traders are now pricing in around a 70% chance that the Fed will keep borrowing costs unchanged in September.
This creates a supportive near-term backdrop for the non-yielding metal, but the inflation outlook is far from settled. Inflation is still running above the Fed’s 2% target, while the impact of the energy shock has not fully faded. Oil prices remain elevated as uncertainty over the reopening of the Strait of Hormuz drags on.
Longer-dated US Treasury yields also remain high, as future rate hikes cannot be ruled out if inflation picks up again. This should keep buyers cautious about chasing Gold higher.
Technical analysis: XAU/USD struggles to clear 100-day SMA
XAU/USD remains near recent highs but is struggling to secure a decisive break above the 100-day Simple Moving Average (SMA) at $4,386. The metal holds well above the 20-day SMA, which forms the Bollinger middle band at $4,173.
The Relative Strength Index (RSI) on the daily chart is around 62 and the Moving Average Convergence Divergence (MACD) indicator in positive territory suggests that bullish momentum is still firm enough to challenge the overhead barrier.
On the topside, the area between the 100-day SMA at $4,386 and the Bollinger upper band at $4,455 forms a strong resistance zone. A sustained break above this area could bring fresh bullish momentum.
On the downside, immediate support is seen at the Bollinger middle band around $4,173, ahead of the psychologically important $4,000 mark. A deeper slide would expose the Bollinger lower band near $3,891.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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