Gold drifts higher above $4,350 as softer US PPI data reduces September Fed hike bets
- Gold price edges higher to around $4,360 in Friday’s early Asian session.
- Traders further reduced the odds for a Fed September rate hike following cooler US PPI inflation data.
- Iran said the Strait of Hormuz won't open unless the other side meets commitments.
Gold price (XAU/USD) holds positive ground near $4,360 during the early Asian session on Friday. The precious metal gains momentum following US inflation data. Traders will take more cues from the US July Retail Sales report, which is due later on Friday.
Softer US Producer Price Index (PPI) inflation reinforced bets the Federal Reserve (Fed) will refrain from raising interest rates next month. Data released by the US Bureau of Labor Statistics on Thursday showed that the headline PPI was unchanged MoM in July, versus -0.1% prior, below the market expectations of 0.2%.
Excluding food and energy, the core PPI rose 0.2% MoM in July, against the forecast for a 0.3% gain. On an annual basis, the headline PPI climbed 4.7% YoY in July, while the core PPI rose 4.2% YoY during the same period.
Cooler US PPI inflation data sharply reduced expectations for a Fed rate hike next month, which could provide some support to the yellow metal. Money markets priced in less than a 40% chance of a September Fed hike. It’s worth noting that lower interest rates reduce the opportunity cost of holding non-yielding bullion.
On the other hand, ongoing tensions in the Middle East and uncertainty surrounding reopening the Strait of Hormuz could raise oil-driven inflation concerns and weigh on the Gold price. Iran’s Foreign Minister Abbas Araghchi warned Washington to “be careful” after US President Donald Trump insisted the US has full control of the Strait of Hormuz. Meanwhile, Iran's joint military command, Khatam al-Anbiya Central Headquarters, said on Thursday that no vessel could transit the critical waterway without Tehran's permission.
Gold support seen holding as Fed stays on pause
According to TD Securities, the interest-rate backdrop remains constructive for bullion, with a “Fed likely to remain on hold, despite upside in energy prices” expected to keep “the yellow metal well-supported in the higher range.” The bank suggests that the combination of steady Fed policy and firmer energy markets should help anchor gold prices within this elevated trading band.
Technical Analysis: Gold remains capped under the key 100-day SMA
In the daily chart, XAU/USD remains capped in the near term as it holds below the 100-day Moving Average (MA), while still trading comfortably above the Bollinger Bands’ middle line. The Relative Strength Index (14) at 62.72 shows firm but not extreme bullish momentum, which hints that upside attempts could continue, though the broader structure suggests rallies are vulnerable while price stays under the 100-day MA.
On the topside, immediate resistance is located at the 100-day MA at $4,385, with a stronger barrier at the Bollinger Bands’ upper line near $4,435. On the downside, initial support emerges at the Bollinger middle band around $4,155, ahead of a deeper floor at the lower band near $3,880, where buyers would be expected to reassert themselves if the current pullback extends.
(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.
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