Gold (XAU/USD) extended its recovery on Friday, trading 0.89% higher at $4,379, as a retreat in oil prices offset the drag from a Federal Reserve rate hike earlier in the week. The metal had fallen to a near two-month low of $4,235 on Wednesday after the Fed raised its benchmark rate by 25 basis points, its first increase in three years.
Oil Eases Despite Supply Concerns
Oil prices remained subdued even as geopolitical tensions persisted. The Houthis, an Iran-backed group in Yemen, attacked the Arabian East-West Oil pipeline last week, forcing its shutdown and potentially delaying shipments to European buyers. Saudi Aramco has not confirmed the disruption, according to a Bloomberg report. Despite these concerns, West Texas Intermediate (WTI) traded flat, which helped cap the US dollar's gains and supported gold.
Dollar and Yields Steady
The US Dollar Index (DXY), which measures the greenback against six major currencies, was nearly unchanged at 100.29. The 10-year Treasury yield rose about six basis points to 4.996%, boosted by the Fed's rate decision. The central bank's dot plot showed most officials expect at least one more hike this year. Fed Chair Kevin Warsh said the economy remained strong, justifying the first increase in three years, and reiterated the need to achieve the 2% inflation target.
US industrial production was flat month-on-month in August, missing the previous 0.2% gain and the expected 0.3% rise. Money markets now price in a 55% chance of another hike at the October meeting, according to Prime Terminal. Kansas City Fed President Jeffrey Schmid backed the rate rise, noting inflation was still above 3%.
Central Bank Decisions and Upcoming Data
The Bank of England held rates steady, while the Bank of Japan raised its policy rate by 25 basis points to 1.25%. Next week, US data will include speeches from Fed officials, jobs figures, S&P Flash PMIs, and durable goods orders.
Technical Levels and Gold Fundamentals
Gold faces stiff resistance at $4,400, having retreated from a daily high of $4,399. The Relative Strength Index (RSI) points to bullish momentum. A break above $4,400 could open the door to $4,450 and the psychological $4,500 level. On the downside, support lies at the 100-day simple moving average (SMA) of $4,320, followed by the 50-day SMA at $4,288 and the September 16 low of $4,235.
Gold has long been used as a store of value and medium of exchange. It is widely seen as a safe-haven asset and a hedge against inflation and currency depreciation. Central banks are the largest holders of gold, and they added 1,136 tonnes worth around $70 billion to their reserves in 2022, the highest yearly purchase on record, according to the World Gold Council. Emerging market central banks, particularly in China, India, and Turkey, have been increasing their holdings. Gold typically has an inverse correlation with the US dollar and Treasury yields, and it often moves opposite to risk assets like equities.
Key takeaways
- Gold rose 0.89% to $4,379 as oil prices eased, despite a Fed rate hike.
- The metal hit a near two-month low of $4,235 on Wednesday after the Fed raised rates by 25 basis points.
- Resistance sits at $4,400, with support at the 100-day SMA of $4,320.
- Central banks bought a record 1,136 tonnes of gold in 2022.
Common questions
Why did gold rise despite a Fed rate hike?
Gold rose as oil prices eased, which helped cap the US dollar's gains. The metal had fallen earlier in the week after the Fed raised rates, but the retreat in oil reduced some of the downward pressure.
What are the key technical levels for gold?
Immediate resistance is at $4,400, with further upside toward $4,450 and $4,500. On the downside, support is at the 100-day SMA of $4,320, followed by the 50-day SMA at $4,288 and the September 16 low of $4,235.
Gold's recovery this week reflects a mix of easing oil prices and persistent geopolitical risk. The metal remains sensitive to US rate expectations and the dollar's direction. For the latest moves, check the live gold price.