Gold strengthens above $4,400 as Fed rate-hike expectations fade

Gold (XAU/USD) extends its intraday advance on Monday, supported by fading expectations that the Federal Reserve (Fed) will raise interest rates at its September meeting, while the US Dollar (USD) remains on the back foot. At the time of writing, XAU/USD trades around $4,425, up 1.11% on the day.

According to the CME FedWatch tool, markets now see around a 70% chance that the US central bank will keep rates unchanged next month, up from 48% a week ago.

The change in expectations from a hike to a pause follows a run of disappointing US economic releases. Nonfarm Payrolls (NFP) fell in July, Retail Sales declined on a monthly basis, and both Consumer Price Index (CPI) and Producer Price Index (PPI) inflation slowed on an annual basis.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.50 after touching 99.30, its lowest level since June 5.

Gold retains a positive near-term bias, although buyers appear reluctant to push prices sharply higher. Developments in the Middle East remain in focus, particularly tensions around the Strait of Hormuz, which keep Oil prices elevated and energy-driven inflation risks alive.

US President Donald Trump reiterated on Monday that Iran would not be allowed to obtain a nuclear weapon as the 60-day memorandum of understanding expires without an agreement. Meanwhile, a senior Iranian official told Reuters that Tehran would escalate tensions in the Strait and across the wider region if diplomacy with Washington fails.

Persistent energy-driven inflation risks mean markets have not fully ruled out a rate hike later this year. Traders now await the Minutes of the July FOMC meeting on Wednesday for greater clarity on the Fed’s policy path.

Technical Analysis: XAU/USD holds bullish bias with 200-day SMA in sight

XAU/USD holds a constructive bullish bias as spot price hovers just above the 100-day Simple Moving Average (SMA) at $4,385. Momentum remains positive, with the Relative Strength Index (RSI) on the daily chart near 65 and the Moving Average Convergence Divergence (MACD) staying in positive territory, which together suggest that buyers retain control without pushing conditions into extreme overbought territory.

On the downside, immediate support is seen at the 100-day SMA around $4,385, with additional structural demand aligning lower at the horizontal level of $4,200 and the 50-day SMA near $4,147, ahead of a deeper floor at $4,000.

On the topside, the 200-day SMA at $4,506 is the next notable resistance, and a clear break above this longer-term average would likely open the door to a continuation of the recent uptrend.

(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.