Gold prices traded in a narrow range near one-week lows during Friday's Asian trading session. Following the release of the US August PPI, the market revised its expectations for a Federal Reserve rate hike, supporting the dollar and putting pressure on gold. Traders remained on the sidelines, awaiting the latest US consumer inflation data before making new directional trading decisions. The combination of expectations of a Fed rate hike and safe-haven demand for the dollar driven by Middle East geopolitical conflicts created a bearish short-term outlook for gold.

Better-than-expected PPI data pushes up interest rate hike pricing due to inflationary pressures.

The U.S. Bureau of Labor Statistics released its PPI report on Thursday, showing that the overall PPI rose 5.4% year-on-year in August, higher than the market expectation of 5.3%, and the July figure was also revised upward to 4.8%. The core PPI, excluding food and energy, rose 4.6% year-on-year, in line with market expectations and up from July's 4.3%. Coupled with the inflationary risks posed by rising energy prices, this upstream price data further solidified market expectations, with investors generally anticipating that the Federal Reserve will lower borrowing costs at its policy meeting next week. The PPI is a leading indicator of wholesale price levels, and the potential for upstream cost increases to be passed on to consumer goods makes the upcoming CPI data crucial. The market generally believes that if the CPI reading is also strong, the dollar will strengthen again, and monetary policy expectations remain the core force driving gold price fluctuations.

The escalating situation in the Middle East has led to a simultaneous rise in oil prices and the safe-haven US dollar.

Tensions between the US and Iran continue to escalate, pushing international crude oil prices to their highest level since May 21. The US Treasury Department plans to impose sanctions on a large, unnamed bank on Monday, continuing to exert economic pressure on Iran. Meanwhile, the Iranian-backed Houthi rebels in Yemen seized the key Red Sea city of Moha, expanding their control over the strategically vital Bab el-Mandeb Strait, raising concerns about prolonged disruptions to oil supplies and further supporting crude oil prices. US President Trump stated that the conflict with Iran is likely to continue beyond the November midterm elections. The ongoing geopolitical risk premium is supporting both crude oil prices and the safe-haven US dollar. Chart: Daily chart of spot gold price

Technical Analysis: Medium-term support remains, but bullish momentum has clearly weakened.

From a technical perspective, gold prices are trading slightly above the 50% Fibonacci retracement level of $4320 and the 200-day exponential moving average of $4313, both of which form key support levels for the medium-term trend. However, momentum indicators are gradually weakening, with the MACD indicator in negative territory and the RSI hovering below 50. This suggests that the bullish momentum is waning, but a complete reversal has not yet occurred. On the resistance level, the first resistance is at the 38.2% Fibonacci retracement level of $4409, with stronger resistance at the 23.6% retracement level of $4519. Support is initially seen at $4320, with the 200-day exponential moving average at $4313 providing double protection. A break below this support zone would likely see gold prices test the 61.8% retracement level of $4231, followed by the 78.6% level at $4104, with a further support level to consider the previous cycle low of $3943. Based on the overall market signals, gold is highly likely to record a weekly decline this week, with the possibility of further depreciation.

Conclusion

The gold market is currently caught in a tug-of-war between expectations of interest rate hikes and geopolitical risk aversion. PPI data has increased expectations of a tighter Federal Reserve policy, while a stronger dollar is suppressing gold prices. The safe-haven effect from the Middle East conflict is unlikely to completely offset the negative impact of monetary policy. Technically, gold prices have held onto medium-term support, but bullish momentum has weakened, and the market direction is highly dependent on the upcoming CPI inflation data. If inflation continues to be high, the probability of a Fed rate hike will increase further, and gold prices will face greater downward pressure; conversely, if inflation cools and rate hike expectations decline, gold will have a chance to recover. Global investors are awaiting the CPI data release, which will determine the main direction of the precious metals market in the short term. Spot gold weekly chart source: FX678. As of 13:32 Beijing time on September 11, spot gold was trading at $4337.68 per ounce.