Gold bulls seem hesitant as resilient US Dollar and yields cap upside
- Gold reverses a modest Asian session dip, though any meaningful appreciation seems elusive.
- The USD buying remains unabated as oil-driven inflation fears keep US bond yields elevated.
- Geopolitical risks further underpin the safe-haven buck, warranting caution for XAU/USD bulls.
Gold (XAU/USD) attracts some dip-buyers near the $4,139 region during the Asian session on Thursday, stalling the previous day's pullback from the $4,220 area, touched in reaction to softer-than-expected US inflation data. However, elevated US bond yields remain supportive of the prevailing strong bullish sentiment surrounding the US Dollar (USD) and should keep a lid on any meaningful appreciation for the non-yielding yellow metal.
The US Bureau of Economic Analysis (BEA) reported on Wednesday that the Personal Consumption Expenditures (PCE) Price Index rose 3.4% YoY in August, unchanged from the previous month's downwardly revised reading and missed estimates of a 3.7% print. Moreover, the core gauge, which excludes volatile food and energy prices, matched July's downwardly revised 3% YoY rate and fell short of expectations. This comes on top of dovish comments from New York Federal Reserve (Fed) President John Williams and tempered bets on an October rate hike, which offered some support to gold.
US inflation revisions temper pressure but keep October FOMC hike in play
Societe Generale’s Jan Groen notes that August US inflation data delivered a mixed signal for policymakers. While “Core PCE undershot expectations,” he cautions that “the details were less reassuring,” with “softer core goods inflation” effectively masking “a reacceleration in core services and super-core inflation, pointing to still-firm underlying price pressures.”
Turning to the broader policy backdrop, Groen argues that “inflation revisions were modestly favorable, but growth revisions were more important.” In his view, “the economy entered 2H26 with stronger momentum than previously thought, while underlying inflation remains too elevated to provide the Fed with clear comfort.” Against that setting, Societe Generale judges that “a pause in October remains possible, but an October hike remains on the table pending September CPI and PPI data.”
The initial market reaction, however, turned out to be short-lived amid an upward revision to the US GDP growth from 1.5% to 2.2% annualized rate for the second quarter of 2026. Furthermore, oil-driven inflation risks underpin the prospects for additional Fed tightening, which keeps US bond yields near multi-year highs. According to CME Group's FedWatch Tool, traders are still pricing in an over 85% chance that the US central bank will raise borrowing costs by the end of this year. Adding to this, the US-Iran standoff lifts the safe-haven Greenback to a fresh high since July 28, acting as a headwind for the Gold price.
Hopes for a diplomatic solution to end the US-Iran war faded after President Donald Trump turned down a seven-day peace proposal from Iran to resolve the military conflict and reopen the Strait of Hormuz. Moreover, Trump has told aides that he expects major combat operations and renewed bombing against Iran to resume following the November midterm elections. In further developments, US Secretary of State Marco Rubio told the Iranian delegation to leave the country immediately amid stalled peace talks. This keeps the geopolitical risk premium in play, favours USD bulls and caps the Gold price.
Traders now look forward to the US economic docket – featuring the usual Weekly Initial Jobless Claims and the ISM Manufacturing PMI. Apart from this, speeches from a slew of influential FOMC members will drive USD demand and provide some impetus to the bullion. Meanwhile, the focus will remain glued to the US Nonfarm Payrolls (NFP) report, due on Friday, which will be looked at for more cues about the Fed's policy path. Furthermore, the incoming geopolitical headlines might continue to infuse volatility across global financial markets and produce meaningful trading opportunities around gold.
XAU/USD 4-hour chart
Technical Analysis
The XAU/USD pair keeps a bearish, capped tone and remains lodged within a downward-sloping parallel channel. The upper boundary of the channel coincides with the 100-period Simple Moving Average (SMA) on the 4-hour chart and reinforces overhead supply near $4,300. That said, the Moving Average Convergence Divergence (MACD) indicator has turned positive, while the Relative Strength Index (RSI) hovers near 44, hinting at stabilizing momentum. Mixed momentum indicators signal only a softening of the downside pressure, rather than overturning the prevailing bearish structure.
Hence, any subsequent move up might still be seen as a selling opportunity and remain capped near the aforementioned confluence hurdle. On the downside, the lower boundary of the channel at $4,082 acts as key support, and a clean break beneath this floor would likely open the way to a broader bearish extension in the near term.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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