Gold extended its recovery from one-week lows on Thursday, trading above $4,400 as markets turned their attention to upcoming US inflation data. The US Producer Price Index (PPI) and Consumer Price Index (CPI) releases, due Thursday and Friday respectively, are seen as the next major catalysts that could determine the metal's near-term direction.
Treasury bond buyback supports gold
The US Treasury Department announced on Wednesday that it will raise its bond buybacks to up to $6 billion for an operation set for Thursday, with future operations of at least $4 billion. The intervention, aimed at maintaining bond market functioning, helped revive buying interest in gold despite a concurrent rise in US Treasury yields. Long-dated yields climbed as much as 5 basis points before easing, but the support for bonds was enough to provide a tailwind for the non-interest-bearing precious metal.
Gold also benefited from growing fiscal concerns as longer-dated Treasury yields continued their upward trajectory, a trend that failed to attract US dollar buyers. The greenback faced additional headwinds from renewed expectations that the Federal Reserve will hold its key interest rate steady at next week's policy meeting. A Reuters poll of economists found that about 70% of respondents expect the Federal Funds Rate to remain in the 3.50%-3.75% range, down from 90% in August.
Inflation data as a pivotal catalyst
With oil prices rising amid the widening Middle East conflict, traders are assessing whether energy-driven inflation could prompt the Fed to raise rates. The headline annual PPI is forecast to rise to 5.3% in August from 4.7% in July, while core PPI is expected to accelerate to 4.6% from 4.2% in the same period.
Analysts at TD Securities noted that precious metals are effectively in a holding pattern as markets look to the inflation figures. The bank highlighted that an upside surprise in the data would strengthen expectations for further Fed tightening and weigh on gold, whereas less worrying inflation numbers could encourage fresh discretionary positioning. This assessment underscores the resilience gold has shown even as the market has priced in higher probabilities of a rate hike.
Technical levels to watch
On the daily chart, XAU/USD holds a bullish near-term bias, trading above both the 50-day simple moving average (SMA) near $4,267 and the 100-day SMA around $4,340. That positioning suggests underlying dip-buying interest even after recent consolidation from the highs.
Immediate resistance is located at the 21-day SMA near $4,463, with the 200-day SMA around $4,538 acting as a more significant barrier if buyers regain momentum. On the downside, initial support is seen at the 100-day SMA near $4,340, followed by the 50-day SMA at $4,267. The Relative Strength Index (14) at approximately 51 points to modest positive momentum without the move becoming overextended. For a closer look at current pricing, see the live gold price.
Key takeaways
- Gold recovered above $4,400 after touching a one-week low near $4,350.
- US PPI and CPI data this week are the main catalysts for the next directional move.
- The 21-day SMA at $4,463 is immediate resistance; the 200-day SMA at $4,538 is a higher hurdle.
- Gold's near-term bias remains bullish as it holds above the 50 and 100-day moving averages.
Common questions
What are PPI and CPI and why do they matter for gold?
The Producer Price Index (PPI) measures the average change in selling prices received by domestic producers, while the Consumer Price Index (CPI) tracks changes in the prices of a basket of goods and services from the consumer's perspective. Both are key inflation gauges. Higher-than-expected readings can strengthen the case for the Federal Reserve to raise interest rates, which tends to weigh on gold, while lower readings can support the metal by reducing the opportunity cost of holding a non-yielding asset.
What technical levels are most important for gold right now?
On the upside, the 21-day simple moving average (SMA) near $4,463 is the first resistance, with the 200-day SMA around $4,538 as a secondary barrier. On the downside, the 100-day SMA close to $4,340 provides initial support, and the 50-day SMA near $4,267 offers additional protection. A break below $4,267 would suggest a deeper pullback.
How might oil prices affect gold?
Rising oil prices, often driven by geopolitical tensions such as the Middle East conflict, can contribute to higher headline inflation. If this feeds through to core inflation measures, it could prompt the Federal Reserve to maintain or raise interest rates, potentially limiting gold's upside. Conversely, if oil-driven inflation proves temporary, it may have less impact on monetary policy and gold.
In summary, gold has regained poise above $4,400, supported by US Treasury intervention and a softer US dollar. The outcome of the US inflation data later this week will likely determine whether the recovery can extend or stall.