Gold drops to nearly two-week low as hawkish Fed bets rise amid oil-driven inflation fears

Gold prices experienced a significant drop to a nearly two-week low as there were increasing expectations of a Federal Reserve rate hike, driven by hawkish remarks from Federal Reserve Chair Kevin Warsh during his speech at the Jackson Hole symposium. Warsh acknowledged that inflation was running high and suggested that interest rates might need to rise if further progress in curbing price pressures was not achieved.

This hawkish tone from the Fed pushed traders to believe there was a 60% chance of a rate increase in September, which caused the US Dollar to reach a two-week high and resulted in the precious metal falling over 3%. The selling pressure continued as heightened tensions between the US and Iran led to an increase in oil prices, fueling inflation worries and further strengthening the hawkish Fed expectations.

Despite this, the safe-haven demand for the US Dollar remained weak due to low US Treasury bond yields, preventing fresh bearish bets on the Gold price and limiting the downside movement. However, the overall market sentiment favored USD bulls, implying that any recovery in the XAU/USD pair would likely face selling pressure. Analysts are closely watching key US macroeconomic data releases, such as the Nonfarm Payrolls report, which could trigger further bearish sentiment.

If the price of Gold falls below the 38.2% Fibonacci retracement level near $4,346.16, it may potentially reach the next support at the 50.0% retracement near $4,263.27. A break below $4,263.27 could expose deeper support levels at $4,145.27 and $3,994.96. The immediate resistance for the Gold price is at the 38.2% retracement level at $4,429.04, followed by the 100-period Simple Moving Average around $4,475.07 and the 23.6% Fibonacci level near $4,531.59, with the cycle high at $4,697.36 as a distant barrier for any sustained recovery.