Gold slumps to near $4,350 amid oil-driven inflation fears, US inflation data in focus
- Gold price tumbles to around $4,350 in Wednesday’s early Asian session.
- US forces hit Iranian tankers in response to attacks on US ships.
- The US PPI and CPI inflation data will take center stage later on Wednesday.
Gold price (XAU/USD) falls to near $4,350 during the early Asian session on Wednesday. The precious metal faces some selling pressure as rising oil prices fueled inflation concerns and boosted expectations for a rate hike by the Federal Reserve (Fed) in September. All eyes will be on the US inflation data later on Wednesday.
Bloomberg reported on Tuesday that US forces have struck multiple Iranian tankers tied to Iran’s Islamic Revolutionary Guard Corps (IRGC) in response to attempted missile attacks on a US warship. Additionally, Iran’s semi-official Mehr news agency reported that explosions were heard on the country’s Kharg Island. Saudi Arabia said operations at several of its energy facilities were halted by Houthi attacks.
Escalating tensions in the Middle East pushed oil prices higher, stoking concerns about rising interest rates. This, in turn, could weigh on the yellow metal.
Traders brace for the key US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation data later in the day, which could shape expectations for the Fed’s next policy move.
“Higher oil prices are keeping inflation concerns alive, so this week’s US PPI and CPI will be key in determining whether yields extend higher or retrace,” said Christopher Wong, strategist at Oversea-Chinese Banking Corp.
Traders priced in an over 59.4% chance of a Federal Reserve rate increase this month, according to the CME FedWatch tool.
Gold traders brace for inflation-driven repricing of Fed expectations
According to Commerzbank, the current calm in Gold masks the potential for a sharp shift in Fed pricing once the upcoming US inflation data are released. Strategists at the bank caution that, with markets still finely balanced on the prospect of a September move, “there is still considerable scope for a correction in interest rate expectations should the inflation data surprise significantly on the upside or downside.” This, they suggest, leaves Gold particularly sensitive to any deviation from consensus in the inflation print, as investors reassess the Fed’s likely path.
Technical Analysis: Gold retains a neutral tone in the near term
In the daily chart, XAU/USD sits just above the 100-day simple moving average (SMA) , while still trading below the 20-day Bollinger midline around $4,466, leaving the near-term bias broadly neutral and pointing to range conditions. Price is effectively mid-band between the Bollinger lower band and the upper band, with the Relative Strength Index (RSI) hovering around 47, which hints at lack of directional conviction after the recent pullback.
On the topside, initial resistance emerges at the 20-day Bollinger SMA around $4,465, and a sustained break above this area would expose the upper Bollinger boundary near $4,675 as the next barrier. On the downside, immediate support is provided by the 100-day SMA at roughly $4,345, with the lower Bollinger band near $4,258 acting as a deeper support zone if sellers regain control.
(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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