Gold holds above $4,100, but September rate decision could expose cracks in rally

Gold prices held above $4,100 an ounce on Wednesday as a softer dollar, lower bond yields and falling oil prices supported bullion ahead of crucial US employment data.

Spot gold rose 1.4% to a two-week high of $4,133.83 by 4.55am GMT, while US futures gained 1% to $4,191.90.

Traders reduced the probability of a September Federal Reserve rate increase to 59% from 67% a day earlier.

The advance shows that gold has absorbed a hawkish Fed and fading geopolitical anxiety better than many investors expected.

Yet resilience is not the same as renewed momentum, as bullion remains inside the broad $4,000-to-$4,200 range that has contained trading for roughly a month.

Gold’s stability may be postponing the real test

The Fed’s July decision to leave rates unchanged offered gold some relief, but it did not settle the policy debate.

Three regional Fed presidents favoured an increase, while officials continued to emphasise the need to return inflation sustainably towards 2%.

Natixis economists Christopher Hodge, John Briggs and Selin Aker told Kitco News that July’s uncertainty had effectively been pushed into September.

Two more inflation reports will arrive before the September 15-16 meeting, giving policymakers additional evidence on price pressures and the economic impact of oil.

That makes September more than another date on the calendar.

A rate increase would raise the opportunity cost of holding non-yielding bullion and could revive dollar strength, while a reduction in hike expectations would remove one of gold’s largest obstacles.

ING commodities strategist Ewa Manthey has warned that elevated yields, a stronger dollar and weaker exchange-traded-fund demand could weigh on gold for longer than previously expected.

ING nevertheless remains constructive over the medium term because central-bank buying and reserve diversification continue to support demand.

Jobs and inflation data could break the deadlock

The immediate focus is the US labour market. Investors are awaiting the ADP employment report, weekly jobless claims and Friday’s nonfarm-payroll figures for clues on whether the economy can withstand tighter policy.

Tuesday’s JOLTS report showed little change in job openings.

Petros Pantzari of Monaxa told The Wall Street Journal that the figures did not signal recession, but showed employers becoming more cautious as factory demand weakened.

Weak employment data could pull short-dated Treasury yields lower and force traders to unwind expectations of another increase.

State Street’s Aakash Doshi told Kitco News that disappointing data could rapidly reprice the rate outlook.

He has said lower two-year yields could help gold advance towards $4,500 to $4,750 before year-end.

The reverse risk is equally clear, as strong hiring or sticky inflation could lift yields, strengthen the dollar and send bullion towards $4,000.

A move above $4,100 still needs confirmation

Gold has crossed $4,100, but the technical breakout remains incomplete.

IG senior market analyst Tony Sycamore told Investing.com that bullion needs a daily close above downtrend resistance near $4,080, followed by a break over the early-July high around $4,202, to confirm a sustained recovery.

Without that follow-through, Sycamore sees a risk of another test of the late-June low near $3,942.

His framework makes $4,200 the more important hurdle than Wednesday’s move above the psychologically significant $4,100 mark.