Gold has stalled out around $4,051 an ounce and is barely budging despite falling oil and rising stocks. The gold's immobility is due to one thing: increasing prospects of a September Federal Reserve rate hike, which puts a lid on gold prices through rising yields. Here's why it matters. --- The Fed's Divided House is Driving the Range The July 29 meeting of the Federal Open Market Committee concluded in a 9-3 vote – the most divided decision since September 2016.
All three dissenters favored immediate action by way of an interest rate hike .
Now the CME FedWatch has a 64.5% chance that the Fed will lift rates at its meeting in September. Ten-year U.S. Treasury yields trade at 4.69%, having crossed the 4.73% mark on Friday-the highest level of their kind in over a year. Long-dated30-year bonds breached 5.25% last week-their highest reading since 2007 .
A higher yield on U.S.
Treasuries ups the opportunity cost of holding non-yielding gold, thereby off-setting whatever supportive factors arise from a calmer Middle East. --- The Iran Paradox Gold’s lack of follow-through on Monday is significant. Spot metal quoted $4,051 per troy ounce by 10 a.m., an increase of only $13 relative to the July 31 figure, even after West Texas Intermediate crude plunged 6.21% to $79.41 after President Trump announced he’d call off military strikes against Iran and was ready to engage in talks. Normally the market discount hard a safe-haven asset once a war risk premium is extracted from its price, and this product did neither.
September futures opened higher by 0.7%, then traded to a range seen over the past few weeks.
Why?
Lower geopolitical risk is a positive development for risk assets, but the Fed’s hawkish outlook acts as a drag .
Gold appears torn between opposing forces. --- What This Means for Gold Although Deutsche Bank reiterates a call on gold to move higher in 2019, current momentum suggests a challenging road ahead .
With the Fed’s path towards a September rate increase appearing likely, Treasury yields at an 18-month high and the dollar strengthening, gold continues to face near-term resistance . Key XAU/USD Technical Support and Resistance: Support levels $4,020–$4,030 (recent range bottom) Resistance levels $4,080–$4,100 (recent range top) If gold breaches the resistance level above $4,100, we may see it rally sharply to levels higher than $4,200; a fall below support around $4,020 would set the stage for a correction to levels as low as $3,950 . In the meantime, gold remains shackled to the Fed narrative – until data dictates otherwise . --- The Week Ahead: NFP is the Catalyst The crucial trigger next will be Friday’s release of August U.S. Non-farm payrolls .
The market consensus is expecting 88,000 jobs additions, which is higher than June’s dismal 57,000, yet below the previous month’s 224,000 expansion .
Kalshi market prices predict the probability of a reading of 90,000 or higher to be 41% . Odds that it reaches 80,000 is around 47%. A significant pick up in the economy and an uptick in inflation-as indicated by wages paid in September nonfarm-could lead to an increased probability of additional tightening by the Federal Reserve and an acceleration in Treasury yields -which would likely send prices lower for the yellow metal .
In an opposite scenario where hiring falters, sentiment towards additional monetary policy action by the Fed could sour , a weaker U.S. Dollar would ensue, leading to higher gold prices. --- What This Means for You If you are long gold: Pay close attention to the support level around $4,020 . If the NFP figures were lower than expected, gold prices could make a run for $4,150 or higher .
If you are short gold: Prepare for a potential dip to around $3,950 with strong employment data.
Otherwise, an unfavorable outcome for the dollar may see the metal climb above resistance of $4,100 as mentioned before . Stay disciplines-keep an eye on chart levels-and mark your calendars for important releases on Friday.
