Market Overview
Gold (XAU/USD) shows slight downward movement on Thursday, currently trading at $1909.11, marking a marginal drop of $0.185 or -0.01% as of 05:47 GMT. The precious metal has retreated from an earlier high of $1912.97. Interestingly, this pullback unfolds despite the U.S. dollar weakening, along with a decline in 10-year Treasury yields, all following the release of U.S. inflation data that reinforces expectations of a Federal Reserve rate pause in the upcoming week.
Factors Influencing Supply and Demand
The dip in gold prices follows a multifaceted report from the Labor Department, where the annual increase in underlying inflation appears to be the smallest in almost two years, suggesting a potential Fed rate pause. However, August witnessed the most significant surge in U.S. consumer prices in 14 months, primarily attributed to skyrocketing gasoline costs. The crux of the matter revolves around the Fed’s rate trajectory for 2024, a critical element adding to the current fluctuations in gold’s value.
Sentiment in the Market
The SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, registered a 0.3% drop in holdings, settling at 882.00 tonnes on Wednesday, indicating a waning appetite for the precious metal.
Impact of a Strengthened Dollar
The stronger U.S. dollar, bolstered by the inflation data, has rendered gold relatively more expensive for investors holding alternative currencies. Although the CPI data largely aligns with forecasts, it suggests that the Federal Open Market Committee (FOMC) is inclined to maintain interest rates at their current level, offering a temporary support threshold for gold.
Fed Rate Expectations and Concerns for Precious Metals
Market projections for the Fed to uphold interest rates at the forthcoming meeting have gained traction, with a 60% probability of a pause in November as well, according to the CME FedWatch tool. Elevated interest rates have the tendency to elevate yields on competing U.S. Treasury bonds, attracting investors away from non-interest-bearing assets like gold. Consequently, those investing in precious metals are less preoccupied with inflation and more focused on the opportunity costs linked to retaining gold in an environment of rising rates.
Short-Term Projection
Investors now await U.S. producer prices and retail sales data for August, alongside the European Central Bank’s decision on rate hikes, in advance of the Fed’s policy announcement on September 20. In this milieu, gold prices encounter downward pressure as the U.S. dollar gains momentum, and the likelihood of a Fed rate pause looms large.
Spot Gold (XAU/USD) is currently positioned at $1908.17, experiencing a slight dip from $1909.51 with limited deviation from the 200-4H moving average at $1922.28. Nevertheless, it resides notably below the 50-4H moving average at $1922.64, indicating a bearish sentiment. The 14-4H RSI at 35.56 suggests weakening momentum but avoids reaching extreme oversold conditions.
Key support levels range from $1885.79 to $1893.70, while resistance levels span from $1946.99 to $1954.88. At present, market sentiment leans towards the bearish side as gold contends with resistance levels and remains below the 50-4H moving average, hinting at potential downward pressure.