Gold buyers struggle near $4,400 amid Fed rate hike bets, rising Oil prices
- Gold rebounds on Wednesday but struggles to push above the $4,400 mark.
- Higher Oil prices and Fed rate hike expectations limit the metal’s recovery.
- XAU/USD holds above the 200-period SMA, but weak momentum keeps the near-term outlook neutral.
Gold (XAU/USD) rebounds on Wednesday, snapping a three-day losing streak, but struggles to extend its recovery. Tit-for-tat attacks between the United States (US) and Iran push Oil prices higher, while a rebound in the US Dollar (USD) keeps the metal below the $4,400 mark after touching a one-week low near $4,341 earlier in the day.
The US military said it destroyed five Iranian crude Oil carriers after the Islamic Revolutionary Guard Corps (IRGC) attempted to strike a US Navy warship. Tehran responded by targeting two American vessels, eight Oil tankers and another 10 ships accused of trying to pass through the Strait of Hormuz. The IRGC also said it attacked a US military base in Jordan.
West Texas Intermediate (WTI) Oil trades around $93.00 per barrel, near its highest level since June 8, and has gained about 4.25% so far this week. Markets are concerned that higher energy costs will keep inflation elevated and force major central banks, particularly the Federal Reserve (Fed), to raise interest rates. Higher borrowing costs tend to weigh on Gold by increasing the appeal of interest-bearing assets.
The benchmark 10-year US Treasury yield trades around 4.81%, near its highest level since November 2023. According to the CME FedWatch Tool, traders currently price in around a 60% chance of a 25-basis-point (bps) rate hike at next week’s meeting.
Traders now look ahead to this week’s US inflation data, with the Producer Price Index (PPI) due on Thursday and the Consumer Price Index (CPI) scheduled for Friday. The figures could bolster the case for a Fed rate hike at its September 15-16 meeting.
Hawkish Fed expectations and elevated Treasury yields help the US Dollar avoid a steeper decline. The Greenback has been under pressure from a sharp rally in the Japanese Yen (JPY), with USD/JPY hovering near 153.50, around levels last seen in February.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.80 after touching an intraday low of 98.62, its weakest level since August 21.
Looking ahead, Gold is likely to stay sensitive to Fed rate expectations and developments in the Middle East. On Wednesday’s US economic calendar, traders await the ADP Employment Change 4-week average and details of the US Treasury’s expanded bond-buyback program taking effect at 15:00 GMT.
Technical analysis: XAU/USD holds above key 200-period SMA
On the 4-hour chart, XAU/USD holds above the 200-period Simple Moving Average (SMA) at $4,356, suggesting buyers remain active on dips. However, the 50-period SMA at $4,415 caps the immediate upside. The Relative Strength Index (RSI) stands at 47, while the Moving Average Convergence Divergence (MACD) remains slightly negative, pointing to weak momentum and a broadly neutral near-term bias.
On the upside, the 50-period SMA at $4,415 acts as the first resistance, followed by the 100-period SMA around $4,489. A break above these levels could bring the $4,550 horizontal barrier into focus, followed by $4,700.
On the downside, initial support is seen at the 200-period SMA near $4,356. A clear break below this level could intensify selling pressure and open the door toward the $4,200 support zone.
(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.