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Gold slides as US PPI reinforces Fed hike expectations, US Dollar and yields rise

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milkahnjiru12
  • Gold trades under pressure as rising yields and Fed rate-hike bets favour the US Dollar.
  • US CPI takes centre stage after producer inflation offers little relief.
  • The daily chart points to neutral momentum, while XAU/USD remains capped below its 200-day SMA.

Vishal ChaturvediFXStreet

Gold (XAU/USD) extends its decline during American trading hours on Thursday as a recovery in the US Dollar (USD), rising US Treasury yields and Federal Reserve (Fed) rate-hike expectations weigh on the precious metal, while traders also assess the latest US Producer Price Index (PPI) data. At the time of writing, XAU/USD trades around $4,346 after reaching an intraday high of $4,434.

US PPI rose 0.4% MoM in August, matching market expectations and accelerating from the 0.1% increase recorded in July. Annual producer inflation climbed to 5.4%, slightly above the 5.3% forecast and up from 4.8%.

Core PPI, which excludes food and energy prices, offered a softer reading. The index rose 0.2% MoM, below the 0.3% forecast and the previous 0.3% increase. On an annual basis, core producer inflation increased to 4.6% from 4.3%, in line with expectations.

The figures kept the possibility of a Fed rate hike firmly on the table. At the same time, rising Oil prices due to tensions in the Middle East add to inflation concerns and strengthen the case for tighter policy. Attention now turns to Friday’s US Consumer Price Index (CPI) data, which could settle the debate over whether policymakers move ahead with a hike.

According to the CME FedWatch Tool, traders price in around a 64% probability of a rate hike next week. However, most economists surveyed by Reuters expect the central bank to keep interest rates unchanged through the end of the year. As a non-yielding asset, Gold tends to benefit when interest rates are low, as this reduces the opportunity cost of holding the precious metal.

Strategists at DBS caution that an “energy-driven squeeze represents a harder choice, potentially requiring the Fed to contain inflation expectations while adding pressure on growth,” but add that “a credible Fed response could support the USD and ease longer-term inflation concerns.”

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.10, recovering from an intraday low of 98.71. Meanwhile, the benchmark 10-year yield trades around 4.92%, its highest level since November 2023, after the Treasury’s larger bond buyback plan failed to impress markets.

In the near term, Gold remains vulnerable to rising Fed rate-hike expectations and elevated Treasury yields, while tensions in the Middle East are offering little direct support.

Technical analysis: Bears retain control below 200-day SMA

On the daily chart, XAU/USD holds above the 50-day and 100-day Simple Moving Averages (SMAs), suggesting underlying trend support, yet it remains below the 200-day SMA near $4,538, which caps the broader topside.

The Relative Strength Index (RSI) around 47 points to neutral momentum, while the Moving Average Convergence Divergence (MACD) indicator stays below zero with a negative reading and subdued histogram, hinting that rallies could still face selling pressure despite the constructive underlying structure.

On the topside, initial resistance is seen at the 200-day SMA around $4,538, with a break there exposing the next key barrier at the horizontal resistance level near $4,700. On the downside, immediate support emerges from the nearby price pivot zone around the latest close, followed by the 100-day SMA at about $4,339 and the 50-day SMA near $4,266. A deeper slide would bring the major horizontal floor at $4,000 into view as the next significant demand area.

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