After a sharp drop earlier this week, spot gold has successfully recovered all its losses, reflecting a shift in market pricing in a potential interest rate decision from the Federal Reserve's next meeting. Investors will be closely watching US August inflation data, while the short-term technical outlook for precious metals suggests that sellers remain hesitant. Gold Rebounds Amid Investor Confusion Over Fed's Next Move Gold remained under pressure in the first half of the week as hawkish comments from Federal Reserve Chairman Kevin Warsh at the Jackson Hole symposium reignited market expectations for a September rate hike. Meanwhile, the escalating Middle East crisis further weighed on gold prices, pushing them to their lowest level since early August, falling below $4,300 by early Wednesday trading. Over the weekend, the US and Iran launched their first military strikes in weeks. The US attacked two rocket launchers on Iran's Larak Island, while Iran responded by attacking US military bases in Jordan and the United Arab Emirates (UAE). News of the US strikes and Tehran's claim of civilian deaths during Tuesday's US trading session marked a further escalation of the conflict. Following the attacks, US President Donald Trump tweeted on TruthSocial that Iran "will be hit again with a stronger, higher-level strike, but this will not be the biggest attack yet; the biggest one is brewing." In response, the Islamic Revolutionary Guard Corps stated it had attacked two US military bases in the UAE. Spot gold rallied on Wednesday afternoon, ending the day higher. Weaker-than-expected US private sector employment data pressured the dollar, while a sharp drop in USD/JPY suggested possible intervention in the foreign exchange market. On Thursday, the dollar faced renewed selling pressure, allowing spot gold to extend its rebound for a second consecutive trading day. Federal Reserve Governor Christopher Waller's cautious stance on policy tightening made the dollar less attractive. Waller's key statement—that he would support keeping the policy rate unchanged in September if August inflation showed continued progress, but would consider raising rates if the data was strong—highlighted a delicate balance in his reaction function, highly dependent on data, suggesting that a rate hike at the next meeting is not a certainty. He acknowledged seeing signs of inflation finally declining, while noting that inflation remained high and tolerance for renewed price pressures was low, further confirming his reservations about raising rates. Following Waller's speech, the CME FedWatch tool showed that the probability of a 25 basis point rate hike at the upcoming Federal Reserve meeting fell to 50% from about 63% the previous week. As a result, gold climbed above $4,500 late Thursday, erasing all losses from the week. OCBC analysts, commenting on the gold price movement, noted that gold "rose more than 2%, briefly approaching a high of $4,510, as Waller's speech prompted the market to reduce expectations for a September Fed rate hike, thereby putting downward pressure on US Treasury yields and the dollar." They stated that this latest move "partially reversed the sharp sell-off earlier this week—when Warsh's speech in Jackson Hole and rising global yields put pressure on precious metals." OCBC added, "Geopolitical tensions continue to provide marginal support for gold prices, however, higher oil prices pose a two-way risk if they are reflected in inflation expectations and yields." Data released on Friday showed that US non-farm payrolls increased by 162,000 in August. This data far exceeded market expectations of an increase of 56,000, prompting a market reaction and pushing the dollar higher. Other details in the report showed that total employment figures for June and July were revised upwards by 11,000 and 44,000 respectively, while the unemployment rate remained unchanged at 4.1%. Despite the strong labor market report, gold failed to sustain its rebound, with gains stalling near the weekend. Gold investors await key US inflation report . The Federal Reserve will enter a quiet period ahead of its September 15-16 policy meeting. Therefore, the Consumer Price Index (CPI) data to be released by the Bureau of Labor Statistics (BLS) on Friday will be the last, and arguably the most important, clue to whether the Fed will choose to raise interest rates. Fed Governor Waller stated that he needs "continuous progress toward our 2% target" before voting to maintain the current policy, explaining that his decision will be "influenced by our understanding of August inflation." While Waller's 2% target refers to the annual core personal consumption expenditures (PCE) price index, a monthly core CPI reading below July's 0.2% could still be considered a confirmation of "progress" and could immediately trigger a dollar sell-off. In this scenario, spot gold is likely to accumulate bullish momentum ahead of the Fed meeting. Conversely, a monthly core CPI reading at or above 0.2% could strengthen market expectations of a rate hike and put significant downward pressure on gold. In short, given the market's current perception of a roughly 60% probability of a rate hike, boosted by strong August jobs data, gold faces two-way risks ahead of Friday's US inflation data. Strategists at TD Securities believe the backdrop for gold has become more favorable. The bank emphasizes, "Given the improved outlook for precious metals under the theme of a new round of dollar depreciation and the fact that a Fed rate hike remains far from certain, we do not see significant downside for gold." The combination of a weakening dollar narrative and continued uncertainty surrounding the Fed's policy path is considered to provide anchor support for gold prices amid recent market volatility. Gold Technical Analysis: Bullish bias remains, but momentum is lacking. (Spot Gold Daily Chart Source: FX678) The Relative Strength Index (RSI) on the daily chart has successfully rebounded above the neutral line of 50 after falling below it at the beginning of the week, currently reading around 51.6. Furthermore, although it had previously closed below it, gold has regained its position above the 100-day Simple Moving Average (SMA, currently around $4354). However, the daily RSI is still flat above 50, and the price has not yet effectively broken through the 200-day SMA around $4533, indicating that buyers are still reluctant to bet on a stable upward trend. On the upside, $4510–$4535 (the 38.2% Fibonacci retracement level of the March to August downtrend, and the 200-day SMA) constitutes a key resistance area. If gold prices can stabilize above this area and confirm it as support, then $4675–$4700 (the 50% Fibonacci retracement level, a psychological level) could be considered the next bullish target, followed by $4850 (the 61.8% Fibonacci retracement level). On the downside, the first significant support level is seen around $4354 (the 100-day SMA), followed by $4300–$4295 (a static level, the 23.6% Fibonacci retracement level) and around $4239 (the 50-day SMA).