Gold flat lines above $4,300 as firmer USD caps upside amid hawkish central bank bets

• Gold kicks off the new week on a subdued note as traders seem hesitant ahead of central bank events.
• Rising Fed rate-hike bets and geopolitical risks boost the USD, capping the upside for the precious metal.
• The lack of any meaningful selling warrants some caution for bears before positioning for deeper losses.

Gold (XAU/USD) struggles to capitalize on Friday's modest bounce from sub-$4,300 levels and oscillates in a narrow band at the start of a new week as traders await key central bank events before placing fresh directional bets. The US Federal Reserve (Fed), the Bank of England (BoE) and the Bank of Japan (BoJ) are scheduled to announce their decisions on Wednesday, Thursday and Friday, respectively. In the meantime, growing acceptance that central banks might stick to a more hawkish stance, amid inflation risks stemming from higher energy prices, continues to undermine the non-yielding bullion.

In fact, crude oil prices remain near the highest level since May 21, touched on Friday, amid Middle East jitters and clashes in the Strait of Hormuz. In the latest developments, Iran-backed Houthi fighters in Yemen said that they used drones and missiles to attack a military base in southern Saudi Arabia. Moreover, a planned regional meeting between Gulf states and Iran regarding the Strait of Hormuz has been postponed, keeping the geopolitical risk premium in play and supporting oil prices. This comes on top of hot US inflation figures, released last week, which raised bets that the Fed will raise interest rates.

According to CME Group's FedWatch Tool, traders are currently pricing in over an 85% chance that the US central bank would raise borrowing costs at the end of a two-day meeting on Wednesday. The bets were lifted by the US Producer Price Index (PPI) and Consumer Price Index (CPI) reports last week, which indicated persistence in wholesale and consumer inflation in August. This, along with persistent geopolitical uncertainties, lifts the safe-haven US Dollar (USD) back to a one-week high set on Friday, which, in turn, suggests that the path of least resistance for the XAU/USD pair remains to the downside.

Meanwhile, US President Donald Trump ramped up pressure on the Fed to keep rates unchanged or even lower them, saying that no country should have lower interest rates than the US. This, in turn, is holding back traders from placing aggressive bearish bets on the precious metal. Hence, it will be prudent to wait for some follow-through selling and acceptance below the $4,300 mark before positioning for any meaningful downside for the Gold price. The aforementioned fundamental backdrop, however, suggests that any attempted recovery might still be seen as a selling opportunity and is more likely to be capped.

XAU/USD 4-hour chart

Technical Analysis

Against the backdrop of the recent failure to find acceptance above the 100-period Simple Moving Average (SMA) on the 4-hour chart, last week's breakdown below the 200-SMA was seen as a key trigger for XAU/USD bears. Moreover, the Moving Average Convergence Divergence (MACD) indicator stays marginally negative, and the Relative Strength Index (RSI) around 41.33 hints at subdued, slightly bearish momentum rather than oversold conditions.

However, some follow-through selling below the 50.0% retracement level of the July-August upswing, near $4,327, is needed to back the case for deeper losses to the 61.8% retracement around $4,241 and the 78.6% retracement near $4,118. The commodity could eventually drop to the broader structural floor around the $3,961 cycle low.

On the topside, initial resistance is located at the 200-period SMA near $4,383, followed by the 38.2% Fibonacci retracement at $4,414. A sustained break above these levels would open the path toward the 100-period SMA around $4,472 and then the 23.6% retracement at $4,521, with the prior cycle high near $4,694 coming into focus only on a stronger recovery.

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