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Gold stands firm as USD dives to one-week low; Fed hike bets cap gains

FXStreet · 2026-09-03T03:51:59Z
Gold stands firm as USD dives to one-week low; Fed hike bets cap gains
  • Gold attracts some follow-through buyers for the second straight day amid a weak USD.
  • Wednesday’s soft US ADP report and retreating US bond yields weigh on the Greenback.
  • Fed hike bets and geopolitical tensions could limit USD losses and cap the XAU/USD pair.

Gold (XAU/USD) built on its recovery from a nearly four-week low for the second straight day on Thursday, though it remains below $4,450 through the first half of the European session. The US Dollar (USD) plummets to a one-week low and is seen as a key factor supporting the commodity. Against the backdrop of sliding US bond yields and Wednesday's soft US ADP report, a sharp rally in the Japanese Yen (JPY) exerts heavy downward pressure on the buck. However, firming Federal Reserve (Fed) rate-hike expectations and inflation risks stemming from higher energy prices act as a tailwind for US bond yields. Moreover, geopolitical uncertainties could limit deeper losses for the safe-haven USD, warranting caution before placing fresh bullish bets on the precious metal or positioning for further gains.

According to CME Group's FedWatch Tool, traders are pricing in around a 62% chance that the US central bank will hike rates at its upcoming September 15-16 policy meeting. The expectations were lifted by Fed Chair Kevin Warsh's hawkish remarks last Friday. Moreover, worries that rising energy prices will rekindle inflationary pressures back the case for Fed tightening, which could limit the USD's corrective slide and cap the non-yielding bullion. In fact, crude oil prices trade near the highest level since July 24, touched on Wednesday, as tensions between the US and Iran have flared up after fresh US strikes on Iranian targets and retaliatory drone and missile attacks by Tehran across the Gulf region.

Furthermore, US President Donald Trump said on Wednesday that he is prepared to launch another attack on Iran. This, along with continued clashes over the Strait of Hormuz, keeps the geopolitical risk premium in play, which should continue to support oil prices and the USD. Hence, it will be prudent to wait for strong follow-through buying before confirming that the Gold price has bottomed out in the near term and placing fresh bullish bets. Traders might also opt to wait for the release of the crucial US Nonfarm Payrolls (NFP) report on Friday, which will be looked at for more cues about the Fed's future policy path and help in determining the next leg of a directional move for the XAU/USD pair.

XAU/USD 4-hour chart

Chart Analysis XAU/USD

Technical Analysis

The overnight close above the 23.6% Fibonacci retracement level of the recent corrective slide from an over three-month peak, set in August, and the subsequent move up back the case for further gains. That said, the 38.2% retracement at $4,438 is the first cap, reinforcing the idea of a corrective bounce within a broader downside phase. Furthermore, the Moving Average Convergence Divergence (MACD) indicator turns positive and the Relative Strength Index (RSI) hovers near 49, hinting at stabilizing but not yet bullish momentum.

A move beyond the 38.2% Fibonacci level, however, should pave the way for a move toward the 100-period SMA at $4,480, the 50.0% retracement at $4,487, the 61.8% level at $4,535, and, later, $4,604 and $4,692. On the downside, immediate support emerges at the 23.6% retracement at $4,378, while a deeper pullback would expose the Fibonacci-derived structural floor near $4,282.

(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.