Gold retreats to $4,300 support as oil surge boosts rate hike bets before US CPI

FUNDAMENTAL OVERVIEW

Gold's price action has been largely negative following the strong US NFP report that sparked a hawkish repricing, while the oil price surge added momentum. Escalating attacks between the US and Iran, along with Houthi strikes on Saudi energy facilities, provided a tailwind for oil prices to reach new highs.

Momentum increased as traders began pricing a prolonged conflict after Trump stated he expects the war with Iran to end immediately after the US midterm elections in November, effectively acknowledging the war may last at least through the election period.

On Wednesday, WTI crude broke through the psychologically key $100 level, triggering a broad hawkish repricing in interest rate expectations.

Attention on Thursday is on the Core CPI month-over-month measure, which Fed members have been monitoring. Fed's Waller recently said he would consider a September rate hike if the monthly core reading surprised to the upside. That statement, however, came before the latest oil price surge.

Traders are now pricing a 67% chance of a rate hike at the upcoming meeting. In my view, an in-line CPI will not be enough to steer the market away from a rate hike expectation. If we go into the FOMC meeting with higher probabilities for a hike, the Fed will be forced to raise rates to avoid delivering a dovish surprise.

I believe only a soft Core CPI could support gold in the short term, while an upside surprise would likely exacerbate risk-off sentiment and trigger a selloff, as the market may start pricing a more aggressive rate hike path.

GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily timeframe, gold is trading at the 4,311 support. Buyers are expected to step in here with a defined risk below the support, positioning for a rally to the 4,890 level. Sellers, on the other hand, will want to see the price break lower to pile in for a drop to the 3,885 level next.

GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the 4-hour timeframe, a downward trendline defines the recent bearish structure. If we get a pullback to the trendline, sellers are expected to lean on it with a defined risk above to keep pushing into new lows. Buyers, conversely, will look for a break higher to increase bullish bets into the 4,890 level next.

GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the hourly timeframe, there is little to add as it is now just about waiting for the US CPI release. Entering now would be very dangerous as spikes might be large. A soft CPI will likely trigger a pullback to the trendline and might even take gold into higher prices. A hot CPI, on the other hand, will highly likely trigger a big selloff.

UPCOMING CATALYSTS

Today, all eyes will be on the US CPI report.