Gold buyers struggle near $4,400 amid Fed rate hike bets, rising Oil prices

Gold (XAU/USD) rebounds on Wednesday, snapping a three-day losing streak, but struggles to extend its recovery. Tit-for-tat attacks between the United States (US) and Iran push Oil prices higher, while a rebound in the US Dollar (USD) keeps the metal below the $4,400 mark after touching a one-week low near $4,341 earlier in the day.

The US military said it destroyed five Iranian crude Oil carriers after the Islamic Revolutionary Guard Corps (IRGC) attempted to strike a US Navy warship. Tehran responded by targeting two American vessels, eight Oil tankers and another 10 ships accused of trying to pass through the Strait of Hormuz. The IRGC also said it attacked a US military base in Jordan.

West Texas Intermediate (WTI) Oil trades around $93.00 per barrel, near its highest level since June 8, and has gained about 4.25% so far this week. Markets are concerned that higher energy costs will keep inflation elevated and force major central banks, particularly the Federal Reserve (Fed), to raise interest rates. Higher borrowing costs tend to weigh on Gold by increasing the appeal of interest-bearing assets.

The benchmark 10-year US Treasury yield trades around 4.81%, near its highest level since November 2023. According to the CME FedWatch Tool, traders currently price in around a 60% chance of a 25-basis-point (bps) rate hike at next week’s meeting.

Traders now look ahead to this week’s US inflation data, with the Producer Price Index (PPI) due on Thursday and the Consumer Price Index (CPI) scheduled for Friday. The figures could bolster the case for a Fed rate hike at its September 15-16 meeting.

Hawkish Fed expectations and elevated Treasury yields help the US Dollar avoid a steeper decline. The Greenback has been under pressure from a sharp rally in the Japanese Yen (JPY), with USD/JPY hovering near 153.50, around 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 98.80 after touching an intraday low of 98.62, its weakest level since August 21.

Looking ahead, Gold is likely to stay sensitive to Fed rate expectations and developments in the Middle East. On Wednesday’s US economic calendar, traders await the ADP Employment Change 4-week average and details of the US Treasury’s expanded bond-buyback program taking effect at 15:00 GMT.

Technical analysis: XAU/USD holds above key 200-period SMA

On the 4-hour chart, XAU/USD holds above the 200-period Simple Moving Average (SMA) at $4,356, suggesting buyers remain active on dips. However, the 50-period SMA at $4,415 caps the immediate upside. The Relative Strength Index (RSI) stands at 47, while the Moving Average Convergence Divergence (MACD) remains slightly negative, pointing to weak momentum and a broadly neutral near-term bias.

On the upside, the 50-period SMA at $4,415 acts as the first resistance, followed by the 100-period SMA around $4,489. A break above these levels could bring the $4,550 horizontal barrier into focus, followed by $4,700.

On the downside, initial support is seen at the 200-period SMA near $4,356. A clear break below this level could intensify selling pressure and open the door toward the $4,200 support zone.