A weak dollar, high oil prices, and a new outbreak of violence in the Middle East. By all conventional market logic, these factors should have pulled gold in different directions and left it caught in uncertainty. The precious metal chose its direction and rose, ending a three-day decline.

The US Dollar Index fell to its lowest level since early May amid the strengthening Japanese yen. For holders of other currencies, gold became cheaper and therefore more affordable. As a result, a classic supportive factor emerged for the precious metal denominated in US dollars.

Gold Tests the Moving Average

Meanwhile, new attacks on vessels in the Middle East pushed Brent above $100 per barrel. Higher energy prices strengthen the Fed's arguments in favor of raising interest rates at the FOMC meeting on September 15 and 16. The futures market puts the probability of monetary policy tightening at almost 60%. For gold, this is a classic headwind.

However, XAU/USD is being pulled between competing factors. Geopolitical risks and trade barriers are encouraging investors to move toward safe-haven assets. But if the same events accelerate inflation in energy and commodity markets, expectations of Fed monetary policy tightening raise Treasury yields and increase the opportunity cost of holding a precious metal that generates no interest income.

Investors are focused on US producer price and consumer price data. These data, rather than geopolitics, are most likely to shape market expectations for the Fed's interest rate. Strong figures will push Treasury yields higher and put pressure on gold. Softer inflation, by contrast, will reduce expectations of monetary policy tightening.

At the same time, short-term headwinds do not invalidate many investors' long-term view of gold as a hedging instrument. The revival of central bank purchases and the so-called debasement trade are reminders of the rally that pushed XAU/USD prices close to 5,600 in January. China increased its gold purchases in August by the largest amount since 2023. The People's Bank of China's reserves increased by 650,000 ounces, extending the streak to 22 consecutive months.

According to Goldman Sachs, gold traditionally serves as a hedge during periods of concern about pressure from the White House on the Fed, fiscal prospects, and unconventional interventions in the bond markets. Societe Generale goes further and speaks of a new phase of the bullish cycle. This is no longer a speculative impulse, but a structural conviction shared simultaneously by retail investors, asset managers, and derivatives traders.

Which will ultimately prevail—the Friday inflation data or years of confidence in de-dollarization? I suspect that the figures will give the market only a brief pause rather than a definitive answer.

Technically, the Wolfe Wave pattern may still play out on gold's daily chart. To resume buying, the price needs to successfully break through resistance at $4,450 and $4,510 per ounce.