Gold
Market Drivers
The US 10-year Treasury yield closed higher again, making it difficult for gold to extend the gains triggered by the PCE data. The US Dollar also strengthened as a result. Rising Treasury yields combined with a stronger US Dollar generally create an unfavorable environment for gold prices.
The ADP Employment Change report came in significantly above expectations at 90K versus 73K, also rising sharply from the previous month's 38K. Meanwhile, PCE inflation unexpectedly came in softer than forecast. Headline PCE rose 3.4% year over year, below the 3.7% expectation, while Core PCE increased 3.0% year over year, below the 3.3% forecast. These developments prompted markets to reassess expectations for a Federal Reserve interest-rate hike in October.
Fed Has Room to Wait
The three major data releases last night produced mixed signals, but inflation remained the key focus for market participants. August PCE inflation came in below expectations, while second-quarter growth was revised higher. At the same time, a wider goods trade deficit contributed to a sharp decline in the Atlanta Federal Reserve's estimate for third-quarter economic growth.
For investors, the combination suggests that the Federal Reserve may still have room to remain patient rather than rush into another rate hike, although inflation and growth risks have not disappeared.
Goldman Sachs has shifted its forecast for the next Federal Reserve rate hike from October to December. This view is also consistent with comments from New York Fed President John Williams. Williams said one more rate hike this year could be sufficient if the economy develops as expected, adding that there is no urgency to deliver another increase immediately after the September hike.
Futures markets are now pricing in roughly a 37% probability of an October rate hike, down significantly from the beginning of the week when expectations briefly exceeded 70%.
The ISM Manufacturing PMI is scheduled for release at 21:00 WIB. The September reading is expected to increase to 54.8 from 54.6. A stronger-than-expected reading could put additional pressure on gold. Conversely, a softer figure could push gold toward resistance levels, although a decisive breakout is not expected given that Friday's Nonfarm Payrolls (NFP) report remains the key market catalyst.
Gold Technical Analysis
The daily candlestick closed bearish after the upside move stalled at 4,219, followed by a decline toward a closing level of 4,157. Economic data remained mixed, with ADP significantly exceeding expectations while PCE inflation came in softer than forecast. Gold initially reacted positively to the softer PCE reading before the stronger ADP data later weighed on prices.
Technically, the 4,223 resistance level remains effective, with the latest rally stalling just below it at 4,219. However, downside pressure is not expected to extend below the 4,100–4,110 area under normal conditions. Therefore, the overall trading range is expected to remain within the 4,110–4,220 zone unless the ISM Manufacturing PMI comes in substantially stronger than expected.
H4 Analysis
On the H4 timeframe, price action has generally followed expectations. The large Falling Wedge pattern that had been identified produced an upside swing toward the brown zone, with the highest price reaching the area between the brown zone at 4,179–4,203 and the green zone at 4,229–4,259.
Based on the current setup, the upside move is expected to remain limited as the market continues to await Friday's Nonfarm Payrolls report, which is likely to serve as the key economic catalyst for gold this week.
Key Levels:
Resistance: 4,223; 4,229–4,259
Near-term zone: 4,110–4,220
Support: 4,100–4,110
H4 resistance area: 4,179–4,203