Gold Climbs Toward $4,400 as September Fed Hike Odds Tumble

Gold extended its rally into the new trading week, gaining momentum to around $4,395 during early Asian trading hours on Monday. The precious metal's advance came as cooling US inflation data dampened expectations for another Federal Reserve interest rate hike.

The move followed a week in which gold posted its largest one-week gain since January in the first week of August, then touched a fresh two-month peak near $4,450 as markets scaled back bets on a September rate increase before correcting lower to end the week virtually unchanged.

Why rate-hike bets are fading

The catalyst for the shift in sentiment was a run of softer US economic data. The US Census Bureau reported that retail sales declined by 0.6% month-over-month in July, following a 0.2% rise in June and coming in weaker than the 0.1% increase economists had expected.

Preliminary data from the University of Michigan added to the picture, showing one-year consumer inflation expectations edged up to 4.3% in August from 4.2%, while the five-year measure held steady at 3.3%. The softer spending figures followed cooler consumer and producer price data earlier in the week.

How markets are repricing the Fed

Traders responded by trimming their expectations for a September rate hike. According to the CME FedWatch tool, money markets priced in nearly a 33.1% chance of a September hike, while traders assigned around a 71% probability that the US central bank would keep borrowing costs unchanged at its next meeting.

The repricing weighed on the US dollar. The US Dollar Index traded around 99.50, down 0.45% on the day, as a weaker greenback lent support to dollar-denominated gold.

The technical picture

On the daily chart, XAU/USD held just above its 100-day simple moving average, keeping the near-term bias constructive while trend support remained intact. The metal was still struggling to secure a decisive break above that moving average at $4,386, with the $4,386-to-$4,455 area forming a key resistance zone.

For spot gold, first resistance was seen at $4,416.82 and then at $4,481.78, with first support at $4,311.04 and then at $4,195.96.

What analysts expect next

Commerzbank analysts said they expect the Fed not to raise interest rates, meaning the gold price still has further upside potential, while cautioning that the path higher is unlikely to be smooth. They also pointed to renewed buying interest from gold ETF investors as another positive factor reinforcing the constructive medium-term outlook for the metal.

TD Securities offered a similar view, saying CTA net long positioning in gold is becoming more entrenched alongside renewed discretionary appetite, and that a Fed likely to remain on hold amid weaker economic data should leave gold well-supported in the higher range.

Spot gold was trading near $4,373.50 an ounce, up 0.53%, in late-afternoon US trading on Friday, while spot silver traded at $64.530, up 0.32% on the session.