Gold prices continued to decline in early trading on Wednesday after pressure from rising US Treasury bond yields, a stronger US dollar and changes in expectations for Federal Reserve (Fed) monetary policy.
At 9 am, gold was trading around $4,310 an ounce, down about 0.44% since the opening of the Asian session.
This followed a drop of more than 2% in the previous session when gold reached around $4,342, while US gold futures closed around $4,396, down 1.9%.
The latest decline comes after gold previously recorded strong gains throughout August. Therefore, in addition to fundamental factors, profit-taking activities are also likely to contribute to the current selling pressure.
Interest Rate Expectations Be on the Watch
Changes in expectations for the Fed's decision are now the main factor in gold's movement. The probability of a 25 basis point rate hike in September has increased to around 67%, compared to around 40% a week earlier.
Meanwhile, the yield on the 10-year US Treasury bond rose to nearly 4.80%, making fixed income assets more attractive than gold, which offers no interest. The US dollar, which is near a two-week high, also added to the pressure as gold is traded in dollars.
US economic data also continued to show resilience. ISM Manufacturing in August came in at 54.6, although down from 55.6 in July, while input price pressures remained high. This gave the Fed room to maintain a more cautious stance on rate cuts.
The market now turns to US labor data. ADP Employment will be in focus on Wednesday, followed by Initial Jobless Claims and ISM Services on Thursday, before the official Nonfarm Payrolls (NFP) report on Friday.
Stronger-than-expected data could add pressure to gold, while weaker data could dampen expectations of a tighter Fed policy.
After that, attention will turn to the CPI on September 11 before the FOMC meeting on September 15–16, which will be a key event in determining the direction of the next interest rate hike.
US-Iran geopolitical developments are also a concern. Rising tensions support safe haven demand, but rising oil prices due to the risk of energy supply disruptions are also raising inflation concerns.
This could make the Fed more cautious about easing policy, thus limiting gold’s potential upside.
From a technical perspective, $4,310 is the nearest support level. If prices fail to hold at this level, selling pressure could potentially extend to lower support levels.
On the upside, $4,450 is the nearest resistance. If prices manage to break through this level, gold could potentially retest the $4,500–$4,530 area, which is also close to the 200-day moving average around $4,528.
As long as prices are below $4,450, short-term momentum remains cautious. Investors’ main focus now is whether the upcoming US jobs data will be able to reshape expectations for Fed rates.
Overall, gold is facing a correction after a big rally in August. $4,310 is an important level to defend, while ADP, NFP and CPI data will determine whether selling pressure continues or gold is able to form a rebound.
