Gold tumbles as high US inflation supports Fed hawkish bets
Gold (XAU/USD) price drops over 1.37% on Wednesday as economic data from the United States (US) broadly aligned with estimates. Meanwhile, inflation remains close to the 4% threshold, increasing the likelihood of higher interest rates.
Gold prices fell over 1.37% on Wednesday due to US economic data aligning closely with forecasts. Inflation is now near the 4% mark, heightening the likelihood of higher interest rates. The Core Personal Consumption Expenditures (PCE) Price Index for July matched estimates at 3.3% YoY, while headline inflation stayed at 3.7% YoY, surpassing predictions of 3.6%.
The data suggests a potential Fed rate hike towards the end of 2026, with a near 77% chance for a December increase. Energy prices surged due to rumors of Russia escalating its conflict with Ukraine, adding to the upward pressure on gold. The US economy, according to the US Bureau of Economic Analysis, remained steady, with Q2 2026 GDP hitting estimates at 1.5%.
US durable goods orders also doubled June's figures, climbing to 1.1% MoM and exceeding forecasts. Geopolitics impacted gold prices as Iran and Oman reportedly reached an agreement on the Strait of Hormuz, though the reopening depends on Washington accepting Tehran's conditions. Bullion prices were affected by US bond yields resuming their uptrend amid growing speculation of higher interest rates.
The US Dollar Index rose 0.25% to 99.14, hindering the dollar-denominated, non-yielding metal. The US economic calendar includes Initial Jobless Claims on Thursday, the University of Michigan Consumer Sentiment Index, and Fed Chair Kevin Warsh's speech at the Jackson Hole Symposium. Gold is forming a 'evening star' three-candle chart pattern, signaling potential bearish implications.
If XAU/USD closes below $4,594, it may move to the 200-day Simple Moving Average at $4,378, followed by the August 19 swing low of $4,324. Upward, XAU/USD needs to reclaim $4,600, with a potential move to $4,650 and $4,700. The next area of interest above is the May 7 peak at $4,764. Gold has been historically used as a store of value and hedge against inflation and currency depreciation, with central banks diversifying reserves and buying gold to support their currencies.
Currently, gold's inverse correlation with the US Dollar and US Treasuries holds, with a strong dollar typically controlling gold prices.
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