Gold Holds Above $4,300 as Stronger USD Caps Gains Ahead of Central Bank Decisions
Gold (XAU/USD) remained in a consolidation phase heading into the European session on Monday, holding above the $4,300 level as traders awaited a series of major central bank decisions before taking fresh directional positions.
The Federal Reserve (Fed), Bank of England (BoE), and Bank of Japan (BoJ) are scheduled to announce their policy decisions on Wednesday, Thursday, and Friday, respectively. Meanwhile, growing expectations that central banks will maintain a more hawkish stance amid oil-driven inflation risks continue to weigh on the non-yielding precious metal.
Gold Technical Outlook Remains Bearish
Gold’s failure to secure a sustained move above the 100-period Simple Moving Average (SMA) on the four-hour chart, combined with last week’s break below the 200-period SMA, has strengthened the bearish outlook for XAU/USD.
The Moving Average Convergence Divergence (MACD) indicator remains slightly negative, while the Relative Strength Index (RSI) is around 41.33. This points to weak and mildly bearish momentum rather than oversold conditions.
A sustained break below the 50% Fibonacci retracement of the July-August rally, near $4,327, would strengthen the case for further declines toward the 61.8% retracement around $4,241 and the 78.6% level near $4,118.
A deeper sell-off could eventually expose the broader structural support area around the cycle low of $3,961.
On the upside, initial resistance is located at the 200-period SMA near $4,383, followed by the 38.2% Fibonacci retracement at $4,414. A sustained break above these levels could open the door toward the 100-period SMA around $4,472 and the 23.6% retracement near $4,521.
A stronger recovery could eventually bring the previous cycle high near $4,694 back into focus.
Higher Oil Prices Add Pressure on Gold
Crude oil prices remained close to their highest level since May 21, which was reached on Friday, amid heightened tensions in the Middle East and disruptions around the Strait of Hormuz.
In the latest development, Iran-backed Houthi fighters in Yemen said they used drones and missiles to attack a military base in southern Saudi Arabia. A previously planned regional meeting between Gulf countries and Iran regarding the Strait of Hormuz was also postponed.
The developments have kept geopolitical risk premiums elevated and supported oil prices. Higher energy costs could add to inflationary pressures and complicate the Federal Reserve’s policy outlook.
This comes after hotter-than-expected U.S. inflation data released last week increased expectations for a potential Fed rate hike.
Markets Price More Than 85% Chance of Fed Rate Hike
According to the CME Group FedWatch Tool, markets are currently pricing in a probability of more than 85% that the U.S. central bank will raise borrowing costs at the conclusion of its two-day meeting on Wednesday.
Rate hike expectations strengthened following last week’s U.S. Producer Price Index (PPI) and Consumer Price Index (CPI) reports, which pointed to persistent wholesale and consumer inflation in August.
Along with ongoing geopolitical uncertainty, the inflation data helped lift the U.S. dollar back toward the one-week high reached on Friday. A stronger dollar typically weighs on gold, suggesting that the path of least resistance for XAU/USD remains tilted to the downside.
However, U.S. President Donald Trump has continued to pressure the Federal Reserve to keep interest rates unchanged or even lower them, arguing that no country should have lower interest rates than the United States.
The political pressure could discourage traders from building aggressive bearish positions in gold. As a result, traders may prefer to wait for sustained selling pressure and acceptance below $4,300 before anticipating a deeper decline.
Nevertheless, the broader fundamental backdrop suggests that any recovery attempt could continue to attract sellers and remain limited.
U.S. CPI Surprise Boosts Fed Rate Hike Expectations
Analysts at MUFG/BTMU noted that August U.S. CPI inflation came in above expectations, prompting markets to adjust higher their expectations for the Federal Reserve’s policy rate.
The stronger inflation reading has set the stage for this week’s Federal Open Market Committee (FOMC) meeting, as well as the Bank of Japan’s policy decision.
MUFG/BTMU also highlighted that political influence on the Federal Reserve, whether perceived or actual, could become an important factor in how investors interpret the central bank’s next policy steps, particularly amid President Trump’s continued calls for lower interest rates.
