Gold rebounds but Fed rate hike bets risks remain a headwind

• Gold attracts fresh buying as the US Dollar reverses its post-CPI gains.
• US CPI data reinforces expectations of a Fed rate hike next week.
• XAU/USD retains a modest bullish bias while holding above its 50-day and 100-day moving averages.

Gold (XAU/USD) rebounds on Friday, reversing most of the previous day’s losses as a pullback in the US Dollar, US Treasury yields and Oil prices supports the precious metal. However, the upside appears limited after the latest US CPI data strengthened expectations that the Federal Reserve (Fed) could raise interest rates next week. At the time of writing, XAU/USD trades around $4,370, up 1.20% on the day after briefly retesting $4,400.

The precious metal fell nearly 2% on Thursday as surging Oil prices stoked inflation concerns and drove US Treasury yields to multi-year highs. The benchmark 10-year US Treasury yield trades around 4.91% after touching 4.97% earlier in the day, its highest level since October 2023. However, Yields at the front end of the curve remain high as traders price in a greater chance of a Fed rate hike.

Meanwhile, West Texas Intermediate (WTI) Oil trades near $96.50 after briefly climbing above $100, down about 4% on the day. Despite the sharp pullback, WTI remains on track for a second consecutive weekly gain.

US CPI report came broadly in line with expectations, limiting the immediate market reaction. Headline inflation rose 0.4% MoM in August, matching forecasts but accelerating from the 0.1% increase recorded in July. The annual rate held steady at 3.4%, also in line with market expectations.

Core CPI, which excludes volatile food and energy prices, increased 0.3% MoM, above the 0.2% forecast and the previous reading of 0.2%. Annual core inflation eased to 2.4% from 2.5%, matching expectations. Gasoline prices rose 3.9% in August and accounted for more than one-third of the monthly increase in headline inflation.

The US Dollar strengthened following the release but struggled to hold its gains. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99 after climbing to 99.36 in the immediate reaction to the data.

The CPI figures follow Thursday’s Producer Price Index (PPI) report, which showed that annual producer inflation accelerated to 5.4% in August from 4.8% in July. According to the CME FedWatch Tool, markets now price in an 85% probability of a 25-basis-point interest-rate hike at the September 15-16 meeting, up from 67% earlier in the day.

According to TD Securities, “the yellow metal has been able to hold support in the higher range, even as the market grapples with renewed energy upside and the near-term increase in Fed hike probabilities.” The bank argues that “strong data and a hawkish Fed may only catalyze relatively modest near-term selling, postponing the timing of the next leg higher, rather than leading to material downside.”

On a more strategic horizon, TD Securities highlights that “the renewed dollar-debasement theme, elevated central bank buying and renewed ETF accumulation offer a strong support base,” reinforcing the view that any short-term weakness is likely to be contained within a broader constructive backdrop for gold.

Technical analysis: XAU/USD recovery faces key hurdle at 200-day SMA

XAU/USD holds a mild constructive bias as it remains above both the 50-day and 100-day Simple Moving Averages (SMAs), suggesting underlying demand after the recent pullback. However, the advance is still capped beneath the 200-day SMA at $4,538, keeping the broader uptrend in check. The Relative Strength Index (RSI) on the daily chart sits at 49, while the Average Directional Index (ADX) has eased to 20, hinting at a consolidative phase rather than a strong directional move.

On the downside, a decisive break below the 100-day SMA could expose the 50-day SMA at $4,269, followed by $4,150 and $4,000.

On the topside, the 200-day SMA at $4,538 acts as the main resistance. A sustained break above this level would weaken the bearish structure and open the door to a retest of the August 25 high near $4,697.

(The technical analysis of this story was written with the help of an AI tool. Know more.)