Gold trades near $4,322 an ounce on Friday after falling almost 2% in the prior session. Hotter producer prices, rising oil costs, and higher Treasury yields have pushed the odds of a Fed rate hike above 70%, and the metal is now headed for a third straight weekly decline.
Gold is trading near $4,322 an ounce on Friday. It fell almost 2% in the previous session. Investors are now awaiting US consumer inflation data, which could further strengthen expectations of a Federal Reserve rate hike as early as next week.
Producer prices and oil push rate-hike odds higher
US producer price data released on Thursday showed that inflationary pressures intensified in August. Producer prices accelerated as the conflict with Iran pushed wholesale energy costs higher.
Following the release, markets raised the implied probability of a 25-basis-point Fed rate hike to around 71%, from approximately 61% shortly beforehand. Rising oil prices are adding to the pressure on gold, as the escalation of the conflict between the US and Iran has driven energy prices higher, increasing inflation risks and strengthening the case for tighter US monetary policy.
US Treasury yields also rose after purchases under the Treasury's first expanded buyback operation fell short of market expectations. Higher bond yields are generally negative for gold, because the metal does not generate interest income and becomes less attractive relative to yield-bearing assets. Gold has lost more than 2% this week and is on track for a third consecutive weekly decline.
Technical picture points to further downside
On the H4 XAU/USD chart, the market formed a consolidation range around 4,366 before moving lower toward 4,300. An upward correction toward 4,366 cannot be ruled out today, with the main scenario envisaging another decline toward 4,220 once that move completes. The MACD indicator supports continued bearish momentum, with its signal line below zero and pointing firmly downward.
The H1 chart shows the market moving lower toward 4,300 before rebounding to 4,335, with a consolidation range now largely formed above 4,300. An upside breakout from this range could open the way for a corrective move toward 4,366.
The broader scenario stays bearish for XAU/USD.
Source: ActionForex
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