Gold News: Can a Softer Dollar Keep Gold Prices Underpinned Before Fed Minutes?

Gold Gets the Rate Confirmation That Was Missing Last Week

Spot Gold is higher Monday because the two forces that blocked last week’s rally finally flipped. The dollar is lower and Treasury yields are easing at the same time. That was the combination buyers needed after soft payrolls, contained CPI and flat PPI cut into the September hike case but the currency refused to confirm it. The Fed voted 9-3 to hold rates on July 29 and FOMC minutes Wednesday will tell traders whether that dissent was isolated or the start of something broader. Gasoline above $4 per gallon keeps the inflation risk alive, but the data is running the other direction and gold is finally trading like it.

At 11:49 GMT, Spot Gold (XAUUSD) was trading at $4,398.26, up $21.44 or 0.49%.

The Dollar Stopped Fighting the Data

The dollar index fell about 0.2% Monday and touched its lowest level since early June before trimming part of the loss. The euro pushed to a two-month high near $1.1614. The yen also strengthened against the dollar despite weaker Japanese growth numbers.

Last week the currency would not cooperate. Gold rallied on the payrolls miss and the softer inflation reports but the greenback stayed firm. Profit-takers used that disconnect to sell every push higher and the move never built into anything sustained.

Monday is different. The currency market is catching up with the shift in rate expectations. That does not guarantee a straight run higher, but it removes the headwind that killed the prior rally. Gold can absorb a small bounce in the dollar. It cannot sustain a move if the currency starts another sharp recovery.

Lower Yields Are Helping but the Move Is Not Finished

Treasury yields are also working in gold’s favor. The 10-year fell more than 2 basis points to 4.6743%. The 2-year, which tracks Fed policy more closely, slipped more than 1 basis point to 4.1542%. The 30-year dropped more than 2 basis points to 5.2445%.

Friday was the warning sign. Retail sales missed and long-term yields went up anyway. That combination told gold buyers the bond market was not done worrying about inflation, regardless of what the consumer data showed. Monday’s drop in yields across the curve says that concern is fading, at least for now.

Fed-funds futures have September hike odds near 31%, down from roughly 51% a month ago. Payrolls missed, CPI came in contained, PPI was flat, retail sales dropped and consumer confidence fell. That is five reports in a row pointing the same direction. None of them individually closes the door on a September increase. Together they make the argument for one much harder to build, and gold is trading that shift.

Geopolitics Supports Gold but Is Not Driving Monday’s Move

The dollar and yields are carrying Monday’s move, not a single headline out of the Middle East. But the backdrop matters. U.S. envoys were in Cairo Sunday meeting Egyptian, Qatari and Turkish mediators trying to push a Gaza peace plan forward while Israeli airstrikes continued on the ground. The Strait of Hormuz is still restricted. Crude oil stays elevated because of it, and elevated crude keeps the inflation risk on the table for every Fed official watching the data.

The conflict is working two ways for gold. Restricted shipping and higher crude prices keep a protective bid underneath the metal on the breaks, but they also feed into the inflation data the Fed will see before September. Gold benefits from the uncertainty now. It can lose ground if oil pushes yields and the dollar higher than the rate relief can absorb.

Three Fed Dissenters Keep the Hike Case Alive

The rate trade is friendlier but the Fed is not finished debating it. The central bank voted 9-3 to hold rates steady at 3.50% to 3.75% on July 29. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan wanted a quarter-point increase. A three-way dissent on a hold is a wide split for a committee that is supposed to be moving together.

Wednesday’s minutes from that July meeting will show whether Hammack, Kashkari and Logan were fighting alone or speaking for a larger group that stayed quiet on the vote. Gold traders have already repriced September aggressively. If the minutes read hawkish, those bets come back fast and the dollar gets a reason to bounce.

Jackson Hole is right behind it. The problem for gold buyers is that policymakers walking into that symposium still have gasoline above $4 per gallon on the table. July’s inflation data was friendly, but crude oil moved higher after most of that data was collected. One hot August print and the conversation shifts back to whether the Fed needs to act. Gold has a better rate backdrop today than it had a week ago. The oil market can take that away in a single session.

Daily Spot Gold (XAUUSD) Technical Analysis

Spot Gold (XAUUSD) is edging higher on Monday. The move confirms the new minor bottom at $4311.04. Resistance today is an intermediate 50% level at $4416.82. This is followed by a swing top at $4449.83, $4481.78 and the 200-day moving average at $4505.32.

The main trend is up. The bulls are looking to take out $4449.83 to reaffirm the uptrend. Then things could be tricky at the 200-day moving average. This is both resistance and a potential trigger point for an acceleration to the upside. Some traders feel that this is the level the institutions are watching for a new entry.

On the downside, the key level is the swing bottom at $4311.04. Taking out this level will change the minor trend to down. This will also shift momentum to the downside. Extending losses through this bottom could drive spot gold into the short-term 50% level at $4195.96, followed by the 50-day moving average at $4147.74 and a Fibonacci level at $4136.05.

What to Watch

Gold has the rate backdrop it wanted. The dollar is lower, Treasury yields are easing and September hike odds have dropped near 31%. The question is whether the dollar keeps rolling over after its recent strength or bounces back. A continued decline gives gold room to extend the rally. A recovery in the currency or yields tells traders the market is putting the inflation risk back on the table. FOMC minutes Wednesday and Jackson Hole next week are the two events that can reset the trade in either direction.

The metal is holding above recent support and the 200-day moving average overhead is pulling the conversation toward the next major decision level. Gold has room to work higher as long as the dollar and yields stay cooperative, but the range holds until the Fed gives the market a clear reason to break it.

If you’d like to know more about how to trade gold, please visit our educational area.