Gold falls below $4,350 as rising oil prices, US PPI reinforces Fed hike bets
- Gold price slumps to around $4,320 in Friday’s early Asian session.
- US PPI rose by 5.4% YoY in August, hotter than expected.
- Iranian military said it would escalate its response to any further attacks.
Gold price (XAU/USD) tumbles to near $4,320 during the early Asian session on Friday. The precious metal faces some selling pressure after the US Producer Price Index (PPI) inflation data and rising oil prices increased bets for a Federal Reserve (Fed) rate hike. Traders will take more cues from the US Consumer Price Index (CPI) report later on Friday.
Data released by the Bureau of Labor Statistics (BLS) on Thursday showed that the US PPI rose 5.4% YoY in August, versus a 4.8% gain prior (revised from 4.7%). This figure came in above the market consensus of 5.3%.
The core PPI matched consensus, gaining 4.6% YoY in August, compared to the previous reading of a 4.3% increase (revised from 4.2%). On a monthly basis, the headline PPI rose 0.4% and the core PPI increased by 0.2%.
Traders are now pricing in a 70% probability of an increase in US interest rates next week, up from 62% before the data, according to the CME FedWatch Tool.
The PPI data "sort of tells us that there has been a bit of a pickup in underlying inflation in the U.S. economy, and a part of that is due to rising energy costs," said Kyle Rodda, senior financial market analyst at capital.com.
Persistent geopolitical risks heightened concerns over global supplies and stoked inflation fears, supporting the case for the Fed to hike rates at its policy meeting next week. Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.
Iran said it had attacked 10 ships near the Strait of Hormuz on Wednesday, after the US hit five Iranian oil tankers. Iran’s Islamic Revolutionary Guard Corps (IRGC) said it would escalate its response to any further attacks.
Gold reacts to data swings as focus shifts to US inflation
According to TD Securities, a recent “stronger jobs report initially weighed on gold,” but the impact was short-lived as “less hawkish Fedspeak and currency interventions then cooled the narrative,” underscoring that “the market has an elevated sensitivity to incoming data and headlines.” The bank’s strategists flag that “inflation data is the next big catalyst,” warning that “an upside surprise would embolden Fed pricing and weigh on the yellow metal,” whereas “less worrisome inflation could ultimately be the first catalyst to see the next wave of discretionary positioning start to enter the market.”
Technical Analysis: Gold keeps a bearish bias under the 100-day SMA
In the daily chart, XAU/USD holds below the 100-day simple moving average (SMA) and the Bollinger middle band, keeping the near-term bias mildly bearish as recent gains have been surrendered back into the prior range. The Relative Strength Index (RSI) at about 45 sits just below neutral, hinting at fading upside momentum rather than outright oversold conditions.
On the topside, initial resistance is the 100-day SMA around $4,340, with a subsequent cap at the Bollinger midline near $4,465 and a stronger barrier at the upper band around $4,675 if buyers regain traction. On the downside, the Bollinger lower band at about $4,252 offers the next notable support, and a daily close below this zone would open the door to a deeper corrective slide toward earlier horizontal basing levels.
(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.
