Gold rebounds from eight-week low as traders weigh Fed rate path
- Gold price recovers some lost ground to around $4,180 in Wednesday’s early Asian session.
- The US 30-Year Treasury Yield climbed to the highest level since 2002.
- Traders brace for key US economic data this week, including the PCE inflation data due on Wednesday and NFP report on Friday.
Gold price (XAU/USD) rebounds from an eight-week low to near $4,180 during the early Asian session on Wednesday. However, the potential upside for the precious metal might be limited as oil-driven inflation reinforced expectations of tighter monetary policy by the US Federal Reserve (Fed).
Traders looked for clues on whether the US central bank will continue raising the interest rate to rein in inflation. Meanwhile, a stronger US Dollar (USD), higher US Treasury yields, rising energy prices, and inflationary concerns boosted the case for a rate hike.
The US 30-Year Treasury Yield surpassed 5.61% on Tuesday to touch a level last seen in 2002. The two-year yield, more sensitive than longer maturities to changes in the Fed outlook, declined as much as five basis points (bps) before settling around 4.88%.
Higher energy prices can fuel inflation by raising costs across the economy. Gold is widely viewed as a hedge against inflation, but a high interest rate environment increases the opportunity cost of holding the non-yielding metal.
"The heightened expectations for more Fed rate hikes are keeping the dollar up, yields remain elevated. I think the upside might be somewhat limited today and market's going to stay focused on the PCE inflation data tomorrow and the jobs data on Friday," Grant said.
Traders await the US August Personal Consumption Expenditures (PCE) Price Index data on Wednesday for fresh impetus ahead of the Nonfarm Payrolls (NFP) report. Any signs of weakening in the US labor market could weigh on the Greenback and lift the USD-denominated commodity price in the near term.
Gold slides to 7-week low as oil and yields keep downside pressure intact
Strategists at OCBC highlight that gold has "extended its decline, falling to a 7-week low" as the recent rise in oil prices has "reinforced inflation concerns and expectations for further Fed tightening." They note that "higher US Treasury yields and a firm USD added to the pressure," with the "break below 4200 likely exacerbated technical selling." Near term, OCBC sees "oil and the corresponding rates response" as "the key swing factors," adding that "softer US data (such as core PCE, NFP) or some easing in yields could help gold stabilise, while another leg higher in oil and yields would keep downside pressure intact."
Technical Analysis: Gold keeps a bearish vibe under the 100-day SMA
In the daily chart, XAU/USD remains under near-term pressure as it holds below the 100-day simple moving average (SMA) and the Bollinger Bands’ middle line, keeping the broader tone capped despite the recent bounce from sub-$4,100 levels. The Relative Strength Index (RSI) at 40.11 stays in bearish territory but off oversold extremes, hinting at lingering downside risk while suggesting that selling momentum has cooled modestly.
On the topside, initial resistance emerges at the 100-day SMA at $4,295, followed by the Bollinger midpoint at $4,325, with the upper Bollinger band far above at $4,490 reinforcing a wider cap on the upside. On the downside, immediate support is aligned with the lower Bollinger band at $4,165, where a break would expose fresh weakness and open the door to a deeper corrective leg in the near term.
(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.