During Friday's Asian trading session, spot gold continued to consolidate near its one-week low. Following the release of the US August Producer Price Index (PPI), market expectations for a Federal Reserve rate hike strengthened, providing support for the US dollar and weighing on gold prices. Traders are adopting a wait-and-see approach, holding off on fresh directional bets until the latest US consumer inflation figures are published.
Caught between Fed rate hike expectations and safe-haven demand for the US dollar driven by Middle East geopolitical tensions, the short-term outlook for gold remains bearish.
PPI Data Exceeds Forecasts, Inflationary Pressures Boost Rate Hike Pricing
The US Bureau of Labor Statistics released the PPI report on Thursday, showing that the headline PPI rose 5.4% year-on-year in August, surpassing the market expectation of 5.3%, while July's figure was also revised upward to 4.8%. Excluding food and energy items, the core PPI climbed 4.6% year-on-year, in line with market consensus but higher than July's 4.3% reading. Combined with inflation risks stemming from rising energy prices, this upstream price data has further solidified market expectations, with investors widely anticipating that the Fed will raise borrowing costs at next week's policy meeting.
As a leading indicator of wholesale-level price trends, PPI data suggests that rising upstream costs have the potential to transmit to consumer goods, making the upcoming Consumer Price Index (CPI) report all the more critical. Market consensus holds that if CPI readings also come in strong, the US dollar is likely to strengthen further, with monetary policy expectations remaining the dominant force driving gold price fluctuations.
Middle East Tensions Escalate, Oil Prices and Safe-Haven Dollar Strengthen Together
With US-Iran tensions continuing to escalate, international crude oil prices have climbed to their highest level since May 21. The US Treasury Department plans to impose sanctions on an unnamed major bank on Monday local time, as part of its ongoing economic pressure campaign against Iran. Meanwhile, Iran-backed Houthi rebels in Yemen have seized the key Red Sea city of Mukha, expanding their control over the strategic Bab el-Mandeb strait. Market concerns over prolonged disruptions to oil supplies are further supporting crude prices. US President Donald Trump has indicated that the Iran-related conflict is likely to persist beyond the November midterm elections.
The geopolitical risk premium remains in effect, simultaneously underpinning oil prices and bolstering the US dollar's safe-haven appeal.
Technical Analysis: Medium-Term Support Holds, But Bullish Momentum Clearly Fading
From a technical perspective, gold prices are trading marginally above the 50% Fibonacci retracement level at $4,320 and the 200-day exponential moving average (EMA) at $4,313, both of which serve as key support levels for the medium-term trend. However, momentum indicators are gradually weakening, with the MACD trading in negative territory and the Relative Strength Index (RSI) hovering below 50. This signals that upside momentum is fading, though a full reversal has yet to materialize.
On the resistance side, the first hurdle sits at the 38.2% Fibonacci retracement level of $4,409, with stronger resistance at the 23.6% retracement level of $4,519. On the downside, initial support is at $4,320, reinforced by the 200-day EMA at $4,313 forming a dual defense. Should prices break below this support zone, gold would likely test the 61.8% retracement level at $4,231, followed by the 78.6% position at $4,104, with a deeper downside target referencing the previous cycle low of $3,943.
Based on current chart signals, gold is poised to post a weekly decline, with scope for further depreciation.
Market Outlook
The gold market is currently caught in a tug-of-war between rate hike expectations and geopolitical safe-haven flows. The PPI data has boosted expectations for tighter Fed policy, with a stronger dollar weighing on gold prices, while the safe-haven effect from Middle East conflicts has been unable to fully offset the monetary policy headwind. On the technical front, gold is holding its medium-term support, but bullish momentum has waned, leaving the market's direction highly dependent on the upcoming CPI inflation data.
Should inflation readings continue to run hot, the probability of a Fed rate hike would rise further, subjecting gold prices to greater downside pressure. Conversely, if inflation cools and rate hike expectations recede, gold could find room for a recovery. Global investors are all awaiting the CPI release, as this data set will determine the near-term direction of the precious metals market.
As of 13:32 Beijing time on September 11, spot gold was quoted at $4,337.68 per ounce.
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