Gold holds near $4,400 as fading Fed rate hike bets weigh on US Dollar
- Gold holds modest gains around $4,400 as fading expectations of an upcoming Fed rate hike weigh on the US Dollar.
- Soft US economic data pushes short-term Treasury yields lower, while longer-dated yields stay near recent highs.
- XAU/USD holds above the 100-day SMA, although buyers struggle to extend the advance.
Gold (XAU/USD) struggles to build on its intraday advance on Monday but holds modest gains as the US Dollar (USD) remains under selling pressure amid fading expectations that the Federal Reserve (Fed) will raise interest rates at its September meeting.
At the time of writing, XAU/USD trades near $4,401 after touching an intraday high of $4,416 during Asian trading hours.
According to the CME FedWatch tool, markets now see around a 70% chance that the US central bank will keep rates unchanged next month, up from 48% a week ago.
The change in expectations from a hike to a pause follows a run of disappointing US economic releases. Nonfarm Payrolls (NFP) fell in July, Retail Sales declined on a monthly basis, and both Consumer Price Index (CPI) and Producer Price Index (PPI) inflation slowed on an annual basis.
The soft data have pushed short-term US Treasury yields lower, but longer-dated yields remain close to recent highs. This has steepened the Treasury yield curve and created a difficult backdrop for the US Dollar.
Analysts at DBS Group Research caution that the traditional relationship between US rates and the currency is under strain, warning that “fading Fed-hike expectations, persistent US fiscal concerns, and elevated US long-term Treasury yields risk weakening the link between higher US yields and a stronger USD.” In their view, this leaves positioning increasingly precarious, with “speculators with large short USD positions…standing on fragile ground.”
The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 99.45 after touching 99.30, its lowest level since June 5.
Gold retains a positive near-term bias, although buyers appear reluctant to push prices sharply higher. Market sentiment remains closely tied to developments in the Middle East, particularly the chances of reopening the Strait of Hormuz.
The 60-day memorandum of understanding signed by the United States and Iran in June expires on Monday without any agreement. The diplomatic stalemate keeps Oil prices elevated and the inflation outlook uncertain, which could force the Fed to keep borrowing costs higher for longer, a headwind for the non-yielding metal.
Technical Analysis: XAU/USD holds bullish bias with 200-day SMA in sight
XAU/USD holds a constructive bullish bias as spot price hovers just above the 100-day Simple Moving Average (SMA) at $4,385. Momentum remains positive, with the Relative Strength Index (RSI) on the daily chart near 65 and the Moving Average Convergence Divergence (MACD) staying in positive territory, which together suggest that buyers retain control without pushing conditions into extreme overbought territory.
On the downside, immediate support is seen at the 100-day SMA around $4,385, with additional structural demand aligning lower at the horizontal level of $4,200 and the 50-day SMA near $4,147, ahead of a deeper floor at $4,000.
On the topside, the 200-day SMA at $4,506 is the next notable resistance, and a clear break above this longer-term average would likely open the door to a continuation of the recent uptrend.
(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.