Gold bears retain control as Fed hike bets and Oil-driven inflation weigh

Gold (XAU/USD) kicks off the week on a bearish note as Federal Reserve (Fed) interest rate hike concerns dominate market sentiment following the blockbuster US employment report, with energy-driven inflation also in focus as tensions between the United States and Iran continue to simmer. At the time of writing, XAU/USD trades around $4,396, down roughly 0.77% on the day.

However, the metal lacks follow-through selling as weakness in the US Dollar (USD) helps limit losses. The Greenback faces pressure as broad Japanese Yen (JPY) strength outweighs support from hawkish Fed expectations and geopolitical tensions. USD/JPY trades near 154.50, down around 3.30% since the start of the month and revisiting levels last seen in February.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.95, down nearly 0.20% on the day, hovering near two-week lows.

Data released on Friday showed US Nonfarm Payrolls rose by 162K in August, well above the market forecast of 56K, while the Unemployment Rate held steady at 4.1%.

Tensions rose over the weekend after the US military said it struck three Iranian crude Oil tankers on Saturday in response to Iran firing ballistic missiles at two US Navy ships.

The US-Iran conflict provides little support to Gold as markets focus on its inflationary impact through higher energy prices. West Texas Intermediate (WTI) trades near $90 per barrel, close to its highest level since July.

Elevated Oil prices add to inflation risks around the globe, strengthening the case for keeping interest rates higher for longer at a time when bond yields in major economies are already near multi-year highs. This increases the opportunity cost of holding non-yielding Gold.

Looking ahead, Gold is likely to remain sensitive to Fed rate expectations and developments in the Middle East. Trading conditions could stay thin on Monday due to the US Labor Day holiday. According to the CME FedWatch Tool, markets price in around a 58% chance of a rate hike at the September 15-16 meeting.

Later this week, the US Producer Price Index (PPI) is due on Thursday, followed by the Consumer Price Index (CPI) on Friday. Hotter inflation readings would reinforce Fed rate hike expectations, while softer figures could offer Gold some relief.

Technical analysis: Sellers retain control below the 200-day SMA

XAU/USD trades around $4,396 at the time of writing, below the Bollinger mid-line near $4,466 on the daily chart and the 200-day Simple Moving Average (SMA) at $4,536, keeping the near-term bias bearish.

Price still holds above the 100-day SMA at about $4,349 and the lower Bollinger Band around $4,258, suggesting downside pressure is present but not yet disorderly. The Relative Strength Index (RSI) on the daily chart is flat around 50 and a negative Moving Average Convergence Divergence (MACD) reading with red histogram bars hints that momentum lacks clear bullish follow-through.

On the downside, initial support is seen at the 100-day SMA around $4,349, followed by the lower Bollinger band close to $4,258 before a more significant horizontal floor at $4,000. On the topside, buyers would need to lift XAU/USD back above the Bollinger mid-line near $4,466 to ease immediate selling pressure, with the 200-day SMA around $4,535 acting as a stronger cap ahead of the upper Bollinger band near $4,674.