Gold trades with positive bias below $4,400; Fed hike bets cap gains ahead of US CPI

Gold (XAU/USD) attracts some dip-buyers during the Asian session on Wednesday, stalling the previous day's retracement slide from the $4,435 region, or the highest level since June 5. The commodity, however, remains below the $4,400 mark as traders await key US inflation figures for fresh cues about the US Federal Reserve's (Fed) future policy path before placing fresh directional bets on the non-yielding yellow metal.

Friday's weak US Nonfarm Payrolls (NFP) report pointed to signs of a cooling labor market and undermined the case for the Fed to raise interest rates. Investors, however, remain worried about inflation risks stemming from volatile energy prices, which might force the US central bank to adopt a more hawkish stance. In fact, crude oil prices climbed to a one-and-a-half-week high on Tuesday after an advisor to Iran’s Supreme Leader Mojtaba Khamenei said that the Strait of Hormuz will not be opened until the US meets Tehran's demands.

Adding to this, Iran-backed Houthi rebels in Yemen escalated attacks on vessels in the Red Sea and Bab el-Mandeb, particularly targeting Saudi-linked ships. This led to increased war-risk premiums, which act as a tailwind for crude oil prices and should benefit the safe-haven Greenback. Furthermore, hawkish Fed expectations remain supportive of elevated US Treasury bond yields, further underpinning the buck and warranting caution before positioning for an extension of the XAU/USD pair's strong move up witnessed over the past week or so.

Analysts at Deutsche Bank highlighted that the sharp move in energy markets added to pressure on rates, noting that Brent crude “(+4.99% to $87.72/bbl) rallied past $85/bbl for the first time this month, whilst the 10yr Treasury yield (+6.2bps) unwound the entirety of its decline after Friday’s payrolls with September Fed hike pricing returning to above 50% ahead of tomorrow's CPI.” According to the bank, “that backdrop of higher oil prices and rate hike speculation meant it was a tricky session for sovereign bonds around the world,” with a “consistent picture of yields moving closer back to the highs from late-July.”

XAU/USD daily chart

Technical Analysis

The metal is hovering around the 100-day Simple Moving Average (SMA), though it remains capped beneath a dense band of overhead resistance, starting with the 50.0% Fibonacci retracement of the April-June fall and extending towards the 200-day SMA at $4,500.51, suggesting that bulls need a clear break higher to regain control.

On the downside, immediate support is provided by the 100-day SMA at $4,388.33, with further cushions at the 38.2% retracement at $4,298.48 and the 23.6% level at $4,161.40. A break below the latter could expose the structural floor around $3,939.81.