Gold’s Valuation Faces Downward Pressure Amid Strengthening US Dollar

During Wednesday’s early European trading session, GOLD (XAU/USD) observed some selling momentum, with prices hovering around the $1,902 mark. This comes as the US Dollar (USD) gains strength, particularly in anticipation of impending inflation data set to be released on Friday.

Concurrently, the US Dollar Index (DXY), which assesses the USD’s performance against an array of global currencies, surged past the 106.20 mark, a peak unseen since November.

Recent data divulged a decline in the US Conference Board’s Consumer Confidence for September, registering a reading of 103.0, down from 108.7 in August. This four-month nadir underscores the ramifications of escalating interest rates coupled with political uncertainties. Additionally, statistics unveiled an increase in Building Permits to 1.541M in August, up from 1.443M previously. The House Price Index for July also exceeded market expectations, recording a 0.8% month-on-month increase, while New Home Sales saw an 8.7% dip in August.

Last week’s decision by the Federal Reserve was to maintain the interest rate within the 5.25% to 5.50% bracket. From a broader economic perspective, a majority of the committee members anticipate additional rate augmentations later this year. Neel Kashkari, the President of the Minneapolis Federal Reserve Bank, affirmed this sentiment on Tuesday, expressing expectations for another rate hike in the current year. Emphasizing the necessity for slightly elevated rates sustained over an extended period, he highlighted the importance of tempering economic exuberance. Such hawkish stances from Federal officials have catalyzed the ascendancy of the US Dollar. It’s crucial to note that as interest rates escalate, the investment appeal of non-yielding assets, such as GOLD , potentially diminishes.

Market participants dealing in GOLD will keenly anticipate the US Core Personal Consumption Expenditure (PCE) Price Index, slated for Friday’s release. This key inflation metric is projected to retreat from 4.2% to 3.9%, which will undoubtedly guide traders’ strategies surrounding gold valuation.

Gold Technical Perspective:

The daily chart for XAU/USD suggests a potential extension in the metal’s depreciation, with a focal point around the $1900 threshold. Breaching this level might prompt a descent to the August 21 low of $1884.89, with a further potential slide towards the March 8 nadir of $1809.48. Conversely, if GOLD maintains its position above the $1900 level, prospects of revisiting the September 20 peak of $1947.39 become plausible.