Gold is extending Friday’s correction into early Monday, testing the lowest level in eight days near $4,400.
Gold cracks on hawkish Fed, Iran risks
Gold fades a temporary recovery seen in the last hours, as bears remain in control heading into the US Nonfarm Payrolls (NFP) week, despite a broad US Dollar (USD) pullback from two-week highs.
The Greenback is pulling back on profit-taking after a steep rally on Friday. However, a deeper retracement looks elusive amid a revival in hawkish sentiment around a Federal Reserve (Fed) September interest rate hike and fresh US-Iran strikes.
US military forces struck two Iranian launchers on Iran’s Larak Island on Sunday, marking the first known American strikes on Iran since late July. In response, Iran’s Islamic Revolutionary Guard Corps (IRGC) launched ballistic missile strikes on two US bases in Jordan and within the country.
Renewed geopolitical tensions drove Oil prices higher and reignited inflation fears, supporting the case for a Fed rate hike next month, keeping the USD’s further downside in check and undermining non-yielding assets such as Gold.
On Friday, Fed Chair Kevin Warsh explicitly signalled for the first time that rate hikes may be needed to contain inflation. His words at the Jackson Hole Symposium were perceived as hawkish, prompting markets to ramp up bets for a September rate lift-off.
Warsh flags unfinished inflation work as financial conditions stay loose
Fed Chair Warsh delivered a notably more hawkish tone, with the FXS Speechtracker score at 7.4/10, above the 6.5/10 historical average, underscoring heightened concern on price stability. The insistence that the Fed must be confident underlying inflation is moving to objective “or we have work to do,” combined with comments that financial conditions are not restrictive and credit markets show few signs of restraint, points to a bias toward further tightening or a prolonged restrictive stance despite better headline inflation prints. Warsh’s emphasis that this summer’s data do not yet signal a meaningful change in underlying trends, alongside a firm commitment to the 2% PCE target and a predominant focus on prices, reinforces a vigilant inflation-fighting posture that is supportive of the Dollar and broadly negative for risk-sensitive FX.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated level of 129.70, confirming that Fed communication remains firmly in hawkish territory relative to the neutral 100 benchmark.
Markets now see a 57% chance of such a move, up from 39% a week ago, according to the CME Group’s FedWatch Tool.
Looking ahead, it remains to be seen whether Gold extends its correction from over three-month highs of $4,697 or stages a solid comeback.
That said, Gold’s next major trend depends on renewed US-Iran tensions and the upcoming US NFP data due later this week.
In the meantime, hawkish Fed expectations and geopolitical risk premia could remain a drag on Gold, limiting the bright metal’s recovery attempts, if any.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,430.16. The metal retains a constructive near-term tone as spot holds above the 21-day simple moving average (SMA) at $4,411.61 and the 100-day SMA at $4,370.32, while the longer-term 200-day SMA at $4,528.87 stands as the next bullish objective overhead. The 50-day SMA at $4,211.22 remains well below current price, reinforcing an overall supportive moving average structure, while the 14-day Relative Strength Index (RSI) around 53 hints at steady, rather than overstretched, upside momentum.
On the downside, immediate support is located around the current pivot zone near $4,430, followed by the 21-day SMA at $4,411.61 and the 100-day SMA at $4,370.32, which together form a dense demand band before the more distant 50-day SMA at $4,211.22. On the topside, initial resistance is provided by the 200-day SMA at $4,528.87, and a sustained break above this barrier would open the path for a continuation of the broader bullish phase in gold.
(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.
