Gold slips as Warsh Fed hike bets, Oil rally lift US yields

Gold (XAU/USD) price retreats some 0.40% on Monday after last Friday's hawkish remarks by Federal Reserve (Fed) Chair Kevin Warsh, which sparked speculation of a possible rate hike at the September meeting. Despite this, bullion is poised to end the month with gains of over 9%, with XAU/USD trading at $4,432 after hitting a daily high of $4,472.

Warsh's said last Friday that the Fed is committed to tackling high inflation, even if it does not aim for the 2% goal, with the new Fed Chair noting that they “have work to do” if prices remain elevated.

Aside from this, the main theme on Monday is the conflict in the Middle East. The US and Iran exchanged strikes, which pushed energy prices higher. West Texas Intermediate (WTI), the US crude Oil benchmark, rose 2.50% on Monday to $85.62, a headwind for the yellow metal.

Why? Becausehigher energy prices increase the chances of higher interest rates. Hence, Gold fares positively amid lower-yield environments, not the current one, as the US 10-year Treasury yield is up two and a half basis points at 4.706%.

The Greenback retreats some 0.25%, according to the US Dollar Index (DXY). The DXY, which tracks the performance of the buck against six currencies, is at 99.42, below last weeks high of 99.72.

Given the current backdrop, money markets have priced in at least 26 basis points of tightening towards the year-end, according to Prime Terminal. For the September 16 meeting, the odds stand at 64% for a hike and 36% for keeping the Fed funds rate unchanged at 3.50%-3.75%.

Ahead this week, the US economic docket will be busy, with the release of ISM Manufacturing and Services PMIs, a tranche of jobs data – JOLTS Job Openings and Initial Jobless Claims –and, to end, Nonfarm Payrolls figures.

Price action shows Gold is trapped within the 100- and 200-day Simple Moving Averages (SMAs) at around $4,370 and $4,528, respectively, with no definitive direction as a ‘doji’ candle forms in the daily chart.

The Relative Strength Index (RSI) seems to be normalising, despite remaining above its 50-neutral level, which suggests buyers are in charge, but price action suggests XAU could be trading sideways.

For a bullish resumption, Gold must reclaim $4,500 followed by the 200-day SMA. Above this area, the next resistance is the August 25 swing high at $4,697, ahead of the $4,700 mark

Downwards, the first support is $4,400, followed by the 100-day SMA. A decisive push below that level opens the path to $4,300 and to the 50-day SMA at $4,211.