Gold fell on Friday, booking a second straight weekly decline as rising oil prices, higher Treasury yields and firming bets on a September Fed hike weigh on the metal. This week's US CPI report on Friday is the pivotal catalyst, with gold's technical picture already weakening after a break below $4,310.
Gold fell on Friday, leaving the precious metal in negative territory for a second consecutive week. Investors face a busy run of economic data this week, with inflation firmly in focus.
The backdrop has grown more complicated. Rising oil prices, amid renewed tensions in the Middle East, are adding to inflationary pressures, while higher bond yields make non-yielding assets such as gold less attractive. As a result, investors must weigh safe-haven demand against a less supportive interest-rate environment.
Inflation takes centre stage
Attention has turned to inflation following last week's stronger-than-expected US jobs report. The payrolls figures suggested the labor market remains more resilient than recent data had implied, though the print could still be revised lower next month. Still, stronger employment combined with firm wage growth and renewed gains in oil prices has raised concerns about sticky inflation.
This week's US CPI report, due Friday, is therefore likely to be particularly important for markets. PPI figures are due 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. Fed Chair Kevin Warsh struck a hawkish tone at the Jackson Hole symposium, while Governor Christopher Waller has taken a more cautious approach, arguing the inflation data should help determine the next move. Friday's CPI release will be the last major economic data point before the Fed's next meeting.
A hotter-than-expected reading would reinforce expectations of a September rate hike and could put renewed pressure on gold, particularly if Treasury yields move further higher. A softer print, conversely, could revive expectations that rates stay unchanged and give gold 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 hike. Markets are now pricing in roughly a 59% probability of a September hike, compared with about 49% before the employment data.
Gold losing momentum
The near-term technical outlook has become considerably less clear following recent volatility. A second consecutive weekly decline raises the possibility that the bearish trend has returned, and the bullish run that began in early August appears to have lost some of its momentum — a setup that resembles the price action seen earlier this year.
Back in March, gold rallied strongly away from the $4,100 area before that momentum eventually faded as selling returned. The current setup has some similarities, with several of the same macro headwinds still in place: higher bond yields, firmer oil prices and renewed inflation concerns. Markets don't always repeat previous patterns, however, so it would be premature to assume gold is necessarily heading for another prolonged decline.
More concerning for the bulls is the break below the $4,310 area last week, the previous low before the latest leg higher and an important reference point for the current trend. Gold briefly broke below this level on Wednesday before quickly reclaiming it and pushing higher the following session. Friday's bearish close, though, has complicated that recovery and leaves the market vulnerable to another test.
Key levels to watch
The near-term picture now depends on whether gold can regain the levels above it or whether sellers 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, while the $4,460 region is a notable resistance zone. 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 suggest the recent weakness was little more than a correction.
On the downside, the $4,310 area remains the key level. A second test could prove more consequential than last week's. Should sellers finally push convincingly through it, the technical picture would deteriorate quickly, with $4,100 becoming the next target. That would be 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, though, is likely to hinge on Friday's inflation print.
Source: Commodities Analysis & Opinion
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