Gold (XAUUSD) continued its downward momentum on Friday, marking its second consecutive day of losses as the US Dollar (USD) extends its weekly rally. The greenback climbed to its highest level since early August, driven by fading hopes for aggressive Federal Reserve (Fed) rate cuts. The precious metal now trades just above Thursday’s swing low, with market participants awaiting Fed Chair Jerome Powell’s remarks at the Jackson Hole Symposium for fresh policy signals.
Fed Cues and Inflation Data Drive USD Strength
The US Dollar’s strength has been underpinned by stronger-than-expected economic data and hawkish remarks from several Fed officials. Last week’s hotter Producer Price Index (PPI) data highlighted persistent inflationary pressures, prompting traders to temper expectations of deep or aggressive rate cuts.
Kansas City Fed President Jeffrey Schmid reinforced this narrative, describing the current policy stance as “modestly restrictive” and expressing caution over a September rate cut. Similarly, Cleveland Fed President Beth Hammack stressed the need for maintaining restrictive policy levels until inflation shows clearer signs of decline.
Mixed Fed Signals Keep Traders on Edge
While some Fed officials continue to advocate for patience, others are signaling readiness to act if economic conditions weaken. Chicago Fed President Austan Goolsbee acknowledged that the September policy meeting remains “live,” though recent inflation data has made him more cautious. Boston Fed President Susan Collins leaned dovish, suggesting that a rate cut as early as next month is possible due to employment risks and potential tariff impacts.
This mix of hawkish and dovish tones has kept markets in a state of uncertainty, allowing the USD to maintain its upward momentum while suppressing gold’s safe-haven appeal.
September Cut Still in Play Despite Hawkish Tones
According to the CME Group’s FedWatch Tool, markets still see a 75% probability of a rate cut in September, with expectations of at least two 25-basis-point reductions by year-end. However, the scale and pace of the easing cycle remain in question.
Adding to this complex backdrop, Thursday’s jobless claims data showed the sharpest weekly increase in three months, with continuing claims hitting a four-year high. These figures may support the argument for policy easing, but they have yet to derail the USD’s recent rally.
Gold Faces Downside Pressure Despite Risk-Off Sentiment
Typically, cautious market moods and rising risk aversion support gold prices. However, the current environment is different: the combination of a strong USD and higher yields on competing safe assets like US Treasuries is driving investors away from the non-yielding yellow metal.
This unusual dynamic suggests that the path of least resistance for XAUUSD remains downward unless Powell delivers a more dovish tone during his Jackson Hole speech.
All Eyes on Powell at Jackson Hole
The Jackson Hole Symposium has historically been a platform where Fed Chairs have unveiled significant policy directions. This year, traders are looking for clues on the timing and magnitude of upcoming rate cuts. Any sign of dovishness could trigger a relief rally in gold, while a firm commitment to a cautious approach may reinforce bearish pressure.
Technical Picture: Support Levels in Focus
From a technical standpoint, immediate support lies near Thursday’s low, with a decisive break below potentially opening the door toward the $2,300 level. On the upside, resistance is seen near the $2,340-$2,350 range, which would need to be reclaimed for a meaningful recovery to begin.
Conclusion: Dovish or Hawkish Powell to Set Tone
The next directional move for gold hinges almost entirely on Powell’s message. A dovish speech could weaken the USD and spark a rebound in gold, while a neutral or hawkish tone might extend the current downtrend. For now, the short-term bias remains bearish, with traders exercising caution ahead of the critical event.
