Despite numerous bullish drivers for gold, including de-dollarization, US government intervention in the debt market, loss of confidence, and the debasement trade, XAU/USD may decline in the short term. Let’s discuss this topic and outline a trading plan.
The article covers the following subjects:
Major Takeaways
- Gold fears Fed rate hikes.
- An S&P 500 correction will intensify XAU/USD selling.
- The precious metal’s fate hinges on US inflation.
- Strong CPI data would be a reason to sell gold, with a target of $4,170.
Fundamental Forecast for Gold Today
You can’t fight the fundamentals. Recently, gold has been caught between a weakening US dollar and rising Treasury yields. However, once the greenback found its footing as markets priced in ECB monetary tightening and the likelihood of a Fed rate hike in September increased, XAU/USD plunged toward 4,300. Whether the precious metal can recover or sink further will depend on US inflation data.
Gold Weekly Performance
Source: Bloomberg
Despite gold’s recent setbacks, its supporters remain confident. Metals Focus expects XAU/USD to rally, as bullish drivers such as central bank purchases of gold bars, portfolio diversification, concerns about currency debasement and sovereign debt, and uncertainty surrounding White House policy remain in place. Standard Chartered expects prices to recover by year-end amid de-dollarization and government intervention in the bond market. According to Augmont Enterprises, the precious metal will remain strong due to US fiscal pressures, which will continue to undermine confidence in Treasuries and the dollar.
The fundamentals do look strong, but if something spooks XAU/USD bulls, they may rush for the exits. And there is plenty to worry about. Following the producer price data, futures markets raised the implied probability of two Fed rate hikes from 49% to 69%. Derivatives markets are fully pricing in a federal funds rate increase to 4.25% by March.
Market Expectations for Fed Rate Changes
Source: Bloomberg
Brent’s rally toward its May highs is adding fuel to the fire and increasing the risk of accelerating inflation. This is pushing Treasury yields higher and pressuring not only non-interest-bearing gold but also the stock market. Equity valuations are coming under pressure, while competition for investor capital is intensifying as investors face a tougher choice between the S&P 500 and debt-market yields of around 5%. As a result, the risk of a pullback in equity indices is increasing, while investors have recently been selling gold to raise funds to meet margin requirements on their equity positions.
The release of August US inflation data could ultimately determine gold’s fate. The Fed will use these figures when making its rate decision at the September 15–16 FOMC meeting. If consumer prices disrupt the disinflationary trend that emerged in June and July, Donald Trump’s threats will not stop the Committee from tightening monetary policy.
XAU/USD Trading Plan for Today
A lot is at stake, if not everything. Further XAU/USD movements will depend on the CPI readings. An acceleration in inflation would be a reason to sell gold at market, with a view to reversing into long positions if the price rebounds from support at $4,170 and $4,070 per ounce. Conversely, weaker figures would provide a reason to increase long positions, targeting $4,500 and $4,650.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of XAUUSD in real time mode
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