Gold pares losses on softer USD; Fed hike bets cap recovery

Gold (XAU/USD) recovers slightly from sub-$4,400 levels – a one-and-a-half-week low – touched during the Asian session on Monday, though the upside potential seems limited. A softer US Dollar (USD) offers some support to the precious metal and helps trim a part of its intraday losses. Meanwhile, Federal Reserve (Fed) Chair Kevin Warsh's comments on curbing inflationary pressures on Friday lifted bets for an interest rate hike, which might keep a lid on any meaningful recovery for the non-yielding bullion.

Speaking at the Fed‘s annual symposium in Jackson Hole, Wyoming, Warsh acknowledged that inflation is running hot and also hinted that interest rates could need to move higher if more progress isn’t made on easing price pressures. Traders were quick to react and are now pricing in around a 60% chance that the US central bank will raise borrowing costs in September. Moreover, CME Group's FedWatch Tool indicates an 88% probability of a December increase, which lifted the USD to a two-week high on Friday and led to an over 3% fall in the Gold price.

The selling bias remains unabated at the start of a new week as escalating US-Iran tensions lift crude oil prices and fuel inflation fears, bolstering hawkish Fed expectations. US forces struck two rocket launchers on Irans Larak Island in the Strait of Hormuz on Sunday, the first American strikes on the Islamic Republic since late July, prompting Iran to retaliate by launching ballistic missiles at two US bases in Jordan. Moreover, US Treasury Secretary Scott Bessent said that new secondary sanctions were likely to be unveiled weekly in the effort to pressure Iran.

Despite the supportive fundamental backdrop, the safe-haven USD struggles to attract any follow-through buying amid soft US Treasury bond yields. This, in turn, holds back traders from placing fresh bearish bets on the Gold price and helps limit the downside. Nevertheless, the aforementioned fundamental backdrop seems tilted in favor of USD bulls, suggesting that any recovery in the XAU/USD pair is likely to be sold into. Traders now look to key US macro releases, scheduled for the start of a new month, including the Nonfarm Payrolls (NFP) report on Friday.

Friday's break below the 100-period Simple Moving Average (SMA) on the 4-hour chart, for the first time since early August, was seen as a key trigger for bearish traders. Moreover, the commodity is now trading below the 38.2% Fibonacci retracement of the rally from late July lows, validating the near-term negative outlook. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator remains deeply negative, while the Relative Strength Index (RSI) sits in oversold territory near 25, hinting at persistent downside pressure even if a short-lived corrective bounce cannot be ruled out.

Hence, a subsequent fall towards the next relevant support at the 50.0% retracement near $4,346.16, ahead of the 61.8% level at $4,263.27, looks like a distinct possibility. A break below the latter would expose deeper structural floors at $4,145.27 and $3,994.96. On the topside, immediate resistance is seen at the 38.2% retracement at $4,429.04, followed by the 100-period SMA around $4,475.07 and the 23.6% Fibo. level near $4,531.59, while the cycle high at $4,697.36 marks a more distant barrier for any sustained recovery.

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

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Swiss Franc.

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).