Gold (XAU/USD) rebounded from daily lows beneath $4,300 on Friday, reclaiming the 100-day Simple Moving Average (SMA) at $4,335 and trading at $4,373.7, up over 1.29% following the release of US inflation data [1]. The August US Consumer Price Index (CPI) increased by 0.4% month-over-month and 3.4% year-over-year, both matching expectations. Core CPI rose 0.3% month-over-month, slightly above the 0.2% forecast, while annual core inflation eased to 2.4%, in line with estimates [1][2]. Gasoline prices rose 3.9%, accounting for more than one-third of the monthly increase in headline inflation [2].
The CPI data initially strengthened the US Dollar, with the Dollar Index (DXY) climbing to 99.36 before retreating to around 99.11 as longer-dated US Treasury yields pulled back from multi-year highs [2]. The US 10-year Treasury yield dropped 1 basis point to 4.951% on the day, after surging more than 16.5 basis points over the week [1]. Meanwhile, the policy-sensitive two-year yield held near 4.63%, reflecting increased expectations of a Federal Reserve rate hike [2]. Money markets priced in a 91% chance of a rate hike at next week’s Fed meeting according to Prime Terminal [1], while the CME FedWatch Tool showed an 88% probability of a 25-basis-point increase, up from 67% earlier in the day [2].
Despite the hawkish repricing, the US Dollar struggled to capitalize as a sharp decline in Oil prices weighed on longer-dated Treasury yields. West Texas Intermediate (WTI) Oil traded near $96.50 after briefly climbing above $100, down about 4% on the day [2]. The University of Michigan Consumer Sentiment for September deteriorated, with the index falling from 51.7 to 47.8, missing forecasts of 51. Americans expect inflation to rise from 4% to 4.6% in one year and from 3.3% to 3.4% over five years, according to the same report [1].
Looking ahead, the Federal Reserve's monetary policy decision and Chair Kevin Warsh's press conference next week are expected to be key drivers for both gold and the US Dollar [1][2]. Additional US economic data, including ADP Employment Change, the NY Fed Empire State Manufacturing Index, Retail Sales, housing, and jobless claims, as well as speeches by Fed officials, are also on the docket [1]. Price action shows gold struggling to break above $4,400, with sellers defending that level, while the Relative Strength Index (RSI) remains below neutral, indicating further selling pressure [1].
CONCLUSION
US inflation data matched expectations but reinforced market bets on a Federal Reserve rate hike next week, driving volatility in both gold and the US Dollar. Gold benefited from falling yields, while the Dollar Index retreated after an initial spike. The upcoming Fed meeting and related economic data will be crucial in determining the next moves for both markets.