Gold struggles to maintain momentum after its previous day’s positive move, drifting lower on Thursday. A combination of a risk-on market sentiment and a modest US Dollar (USD) uptick prompted profit-taking around the precious metal, while the upcoming US consumer price index (CPI) report keeps traders cautious. 

This article from Arbitics offers readers a thorough and well-explained look at the subject.

Risk-On Sentiment Weighs on Gold

During the Asian session, Gold (XAU/USD) attracted some sellers, reversing part of the prior day’s gains. The downside potential, however, appears limited, as broader equity markets continue to maintain a positive tone. 

The S&P 500 and Nasdaq posted record highs on Wednesday, while Japan’s Nikkei 225 jumped over 1% on Thursday, hitting a fresh record high.

This bullish risk sentiment has acted as a headwind for Gold, as investors temporarily reduce exposure to safe-haven assets in favor of equities. In addition, the USD experienced a modest uptick, marginally pressuring Gold. 

Despite this, a significant USD rally seems unlikely given market expectations that the US Federal Reserve (Fed) will cut interest rates next week, which should provide support to the non-yielding metal.

Fed Rate Cut Bets Support Gold

The US Bureau of Labor Statistics (BLS) reported a decline in the US Producer Price Index (PPI) to 2.6% YoY in August, down from 3.3% in July. Meanwhile, core PPI, which excludes food and energy prices, rose 2.8% YoY versus 3.7% previously.

These figures point to softening domestic demand despite import tariffs, reinforcing the view that the Fed is likely to lower borrowing costs at its upcoming policy meeting. Traders are now pricing in the possibility of multiple 25-basis-point rate cuts before the end of the year, with a small chance of a jumbo cut on September 17.

This Fed-driven expectation should limit any meaningful USD appreciation and continue to support Gold, especially as the commodity remains sensitive to interest rate expectations.

Geopolitical and Trade Uncertainties Provide Support

Persistent trade-related uncertainties and geopolitical tensions also serve as a cushion for Gold prices. On the trade front, the US President has urged the EU to impose 100% tariffs on China and India as part of pressure tactics related to the Russia-Ukraine conflict. Tariffs on Indian imports have already been raised to 50%, citing ongoing purchases of Russian oil.

Meanwhile, Poland shot down Russian drones violating its airspace, marking the first instance of a NATO member firing shots in the conflict. Coupled with threats of further sanctions on Russia, these developments enhance Gold’s safe-haven appeal and limit any material downside.

Technical Outlook: Gold Faces Consolidation

From a technical perspective, the daily Relative Strength Index (RSI) remains in overbought territory, supporting the case for near-term consolidation or a corrective pullback. 

Key support levels are identified near $3,620 (overnight swing low) and $3,600 (round-figure mark). A breach below $3,580 (weekly trough) could trigger deeper losses, potentially dragging Gold towards $3,565–3,560, en route to the $3,510 swing low from last Thursday.

On the upside, resistance is seen around the Asian session top at $3,649, followed by the overnight swing high at $3,657–3,658. A successful break above these levels could allow Gold to retest the all-time peak near $3,675, with potential to approach $3,700 if buying momentum continues. 

However, bulls may hesitate near this psychological barrier, limiting aggressive upward bets in the short term.

Key Takeaways for Traders

• Gold remains under pressure amid positive equity sentiment and modest USD strength, with profit-taking evident.
• Fed rate cut expectations could cap USD gains and provide support to Gold ahead of the US CPI release.
• Geopolitical tensions and trade uncertainties act as additional safety nets for the precious metal, limiting potential downside.
• Technical indicators, such as overbought RSI levels, suggest a consolidation phase or minor corrective pullback.
• Key support levels: $3,620, $3,600, $3,580; key resistance levels: $3,649, $3,657–3,658, $3,675, with a potential extension to $3,700.

Conclusion

Gold’s near-term trajectory is influenced by a combination of macro factors, technical dynamics, and geopolitical events. While a risk-on environment and USD uptick have weighed on prices, persistent Fed rate cut expectations and ongoing global uncertainties continue to provide a supportive backdrop. 

Traders are likely to remain cautious ahead of the US CPI report, waiting for clear market cues before committing to larger directional bets. In this context, Gold is positioned for limited downside while maintaining the potential for upside recovery if supportive fundamentals prevail.