Gold faces headwinds as the US dollar and US yields rise

• Gold price gains stagnate after strong US macroeconomic data.
• US retail sales beat expectations, industrial production improved in August, pushing the US dollar index (DXY) to 100.92.
• Geopolitical tensions in the Middle East are escalating, with Hezbollah blaming Israel for the recent explosions.

Gold prices fall ahead of the US Federal Reserve’s (Fed) monetary policy decision on Wednesday, while the greenback rebounds following a strong (vs. consensus) August US retail sales report. As a result, US Treasury yields advanced and the dollar edged higher, a headwind for the gold metal.

XAU/USD is trading at $2,569, losing 0.50%. Expectations that the Fed will cut borrowing costs by 50 basis points (bps) remain at 63%, while odds for a 25bps cut are 37%, according to CME FedWatch Tool data.

On the data front, US retail sales were stronger than expected, although they trailed the July number, while industrial production improved in August.

TDS Senior Commodity Analyst Daniel Ghali noted that gold’s latest leg “may have been a stop hunt, given the odd timing for a foray into new all-time highs alongside evidence that new shorts have been added by merchant owners”.

At the time of writing, the US Dollar Index (DXY), which tracks the greenback against six other currencies, advanced 0.21% to 100.92, a headwind for bullion prices. Meanwhile, US Treasury yields along the short and long ends of the curve rose.

Meanwhile, the conflict in the Middle East risks a possible escalation. Al-Jazeera reported that Lebanon’s Hezbollah blamed Israel for the television blasts, saying it would receive “just punishment”.

US State Department spokesman Mathew Miller said the United States was not involved in the incident and did not know who was responsible.

Looking ahead, the US economic program will include housing data ahead of the Fed’s interest rate decision and Chairman Jerome Powell’s press conference on Wednesday.

Daily Market Reasons: Gold prices fall after US retail sales, industrial production reports

• US retail sales in August rose 0.1% on the month, beating expectations for a -0.2% decline. Annually, retail sales rose 2.1%, down from 2.9%.
• Industrial production rose 0.8% month-on-month in August, recovering from a -0.9% contraction in the previous month.
• Data from the Chicago Board of Trade suggests the Federal Reserve will cut by at least 111 basis points this year, according to the December 2024 federal funds rate futures contract.

XAU/USD Technical Outlook: Gold price slips below $2,570

Gold prices remain biased despite pulling back somewhat. The precious metal is about to form an “evening star” with three candles – a bearish chart pattern. In the short term, momentum favors sellers, as shown by the descending Relative Strength Index (RSI), breaking a previous high and indicating bearish strength.

In this outcome, bullion prices could be set to test the psychological barrier of $2,550. Once released, the next stop will be the August 20 high, which turned support at $2,531, before targeting the September 6 low of $2,485.

Conversely, the XAU/USD uptrend will resume if buyers drag prices to the all-time high of $2,589. If it were to break through, a new upside could be expected with the psychological levels of $2,600, $2,650 and $2,700.