Gold (XAU/USD) price holds firm on Friday after two days of losses, as US bond yields remain high and inflationary concerns mount, increasing the likelihood of further tightening by the Federal Reserve (Fed) and other major central banks. The XAU/USD pair trades at $4,280 after reaching a low of $4,254.
XAU/USD stabilizes as easing crude offsets stubbornly high Treasury yields
The yellow metal recovered some ground as Oil prices edged lower amid progress in US-Iran negotiations, with CBS reporting that conversations moved to a detailed technical phase and sources in Tehran describing the atmosphere as positive. However, a Senior Iranian official confirmed that the Strait of Hormuz will remain closed and that conditions for nuclear talks between both parties have not been met.
Despite this, West Texas Intermediate (WTI) is down over 3% to $91.00 per barrel. At the same time, the US Dollar Index (DXY), which tracks the buck’s performance against a basket of six currencies, is down 0.22% at 101.02.
The US 10-year Treasury yield edged down nearly 2 basis points to 5.192% on Friday, even though traders increased bets that the Federal Reserve will continue to tighten monetary policy.
Data-wise, the US economic schedule featured core Durable Goods Orders rising above estimates in August, while July data was upwardly revised, indicating robust business spending.
Recently, the University of Michigan Consumer Sentiment Index for September fell to a four-month low of 48.1 in September, down from August’s 51.7. Rising inflationary concerns continued to erode households' purchasing power. Consequently, Americans revised inflation expectations for one year upward to 4.6% from 4%, and for a five to ten-year period, ticked up from 3.3% to 3.4%.
This week, Fed speak provided a leg lower for Gold and elevated the probability of a rate hike at the October meeting. Prime Terminal shows 64% odds, and for the December meeting, the rate is nearly 93%.
XAU/USD technical analysis: Gold recovers, but stays below $4,300
Price action indicates that Gold bias remains tilted to the downside, despite showing signs of life. XAU/USD trades subdued within a ‘bullish wedge’ pattern, and a failure to decisively clear the 100- and 50-day SMAs, roughly $4,304-$4,312, caps the yellow metal's recovery above $4,300.
Momentum shows that Gold's bearish outlook persists, with the Relative Strength Index (RSI) remaining below the 50 neutral mark. Thus, the most likely direction is downward.
For a bearish continuation, XAU/USD needs to break below the ‘bullish wedge' bottom, around $4,200-$4,210. Doing so would invalidate the pattern and open the path to test the August 3 low of $4,019, with the $4,000 mark in sight.
On the upside, initial resistance for Gold is at $4,300, near the SMAs convergence area, followed by $4,350. The next key level is $4,400.
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