- Gold faces a difficult macro backdrop as higher oil prices, Treasury yields and renewed expectations of a September Fed hike weigh on the non-yielding asset.
- The upcoming US CPI report is the key catalyst, with a hotter reading potentially extending the decline and a softer print offering gold a chance to recover.
- Gold’s technical picture has weakened after a second weekly decline and a break below $4,310, with $4,100 and $4,000 coming into focus if that support fails decisively.
prices fell on Friday, leaving the precious metal in negative territory for a second consecutive week. The week has started this week relatively quietly, partly because of the US holiday, but the calm is unlikely to last. Investors have a busy run of economic data ahead, with inflation firmly in focus.
The backdrop for gold has become increasingly complicated. Rising , amid renewed tensions in the Middle East, are adding to inflationary pressures, while higher bond yields are making non-yielding assets such as gold less attractive. Investors are therefore having to weigh safe-haven demand against a less supportive interest-rate environment.
Inflation Takes Centre Stage
Following last week’s surprisingly strong US , attention now turns to inflation.
The payrolls figures suggested that the US labour market remains more resilient than some of the recent data had implied. Still, this was just one month’s worth of data which could be revised lower next month. But the fact that stronger employment was coupled with relatively firm wage growth, and renewed gains in oil prices, this has raised some concerns about sticky inflation.
This week’s US report, due on Friday, is therefore likely to be particularly important for financial markets. The figures are due on Thursday, alongside the European Central Bank’s interest-rate decision, which is also expected to result in a hike.
There is also a sense of growing divergence within the Federal Reserve. Chair Kevin Warsh struck a hawkish tone at , while Governor Christopher Waller has taken a more cautious approach, arguing that the inflation data should help determine the next move.
That makes Friday’s release particularly significant. It will be the last major piece of economic data available before the Fed’s next meeting.
A hotter-than-expected reading would reinforce expectations of a September and could put renewed pressure on gold, particularly if Treasury yields move further higher. Conversely, a softer inflation print could revive expectations that rates will remain unchanged and potentially provide gold with a fresh catalyst higher.
Gold, alongside US equities, came under pressure on Friday after the jobs figures pushed Treasury yields higher and strengthened expectations of a September rate increase. Markets are now pricing in roughly a 59% probability of a hike, compared with about 49% before the employment data.
Gold Losing Momentum
From a technical analysis perspective, the near-term outlook has become considerably less clear following the recent volatility.
The second consecutive weekly decline is significant because it raises the possibility that the bearish trend has returned. The bullish run that began in early August appears to have lost some of its momentum, creating a setup that bears a resemblance to the price action seen earlier this year.
Back in March, gold rallied strongly away from the $4,100 area and initially looked capable of extending its gains. That momentum eventually faded, however, as selling returned. The current setup has some similarities, with several of the same macro headwinds still in place — notably higher bond yields, firmer oil prices and renewed concerns over inflation.
There is little in the broader macro backdrop to suggest that the outcome must be different this time. That said, markets don’t always repeat previous patterns, so it would be premature to assume that gold is necessarily heading for another prolonged decline.
What is more concerning for the bulls from a technical analysis viewpoint is the break below the $4,310 area last week. This was the previous low before the latest leg higher and therefore an important reference point for the current trend.
Gold briefly broke below this level on Wednesday before quickly reclaiming it and pushing higher over the following session. Friday’s bearish close, however, has complicated that recovery and leaves the market vulnerable to another test.
Key Levels to Watch
The near-term technical picture is increasingly dependent on whether gold can regain the levels above it or whether sellers manage to force another break below $4,310.
On the upside, the $4,500 area remains an important barrier, having previously acted as both support and resistance. The $4,460 region also represents a notable area of resistance.
Above that, attention turns to the $4,565-$4,600 zone, which marked the base of the most recent selling pressure. A sustained move through this area would improve the technical picture and suggest that the recent weakness was little more than a correction.
On the downside, the $4,310 area remains the key level to watch. Gold tested it last week and briefly traded below it, but failed to sustain the break. A second test could prove more consequential. Should sellers finally manage to push convincingly through that level, the technical picture would deteriorate quickly.
In that scenario, $4,100 would become the next obvious target, followed by the psychologically important $4,000 area.
For now, the balance of risks remains tilted to the downside. Higher Treasury yields and a modest recovery in the US dollar following Friday’s jobs report have created a difficult environment for gold, while the prospect of a September Fed hike adds another headwind.
The immediate direction, however, is likely to be determined by inflation. A softer CPI print could give gold the breathing room it needs to recover, but another upside surprise would risk turning the recent correction into something more significant.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
