US High Inflation Supports Hawkish Fed Bets, Gold Drops Sharply

Spot gold saw notable selling pressure on Wednesday, falling over 1.37% in a single day, as US economic data largely met expectations but inflation remained near the 4% threshold, reinforcing market bets that the Federal Reserve will maintain a hawkish stance.

**Inflation and Rate Expectations Drive the Selloff**

Although rising inflation expectations are theoretically supportive for gold, the reality is more complex. With markets beginning to price in further policy tightening from the Fed, the US dollar index has strengthened, putting clear pressure on gold. New York Fed President Williams said on Monday that the policy rate is in a favorable position to bring inflation back to 2%, and the Fed will take intervention measures if inflation does not move toward its target. According to the CME FedWatch Tool, traders see a 65% probability of a rate hike in September, and this hawkish positioning continues to cap gold's upside.

**Technical Picture Remains Bearish**

On the daily chart, gold is trading below the 21-day simple moving average and well beneath the 50-day and 100-day moving averages, keeping the broader trend under pressure. The Relative Strength Index (RSI) stands at 46, having recovered toward neutral, but the Average Directional Index (ADX) at 27 suggests the recent downtrend's strength is fading. On the upside, initial resistance sits near the 21-day moving average at $4,065, with more significant resistance at $4,174, while the 100-day moving average at $4,416 reinforces the bearish ceiling. On the downside, initial support aligns with the $4,000 level; a daily close below this threshold could reopen the path toward the $3,850 support zone.

**Upcoming Data and Fed Speeches in Focus**

In the week ahead, the US core PCE data and remarks from multiple Fed officials will be the market's key focus. If core PCE again beats expectations, the pressure on the Fed to hike rates will intensify, potentially triggering another round of selling in gold. Additionally, the ISM manufacturing PMI, JOLTS job openings, ADP employment change, and nonfarm payrolls report will provide further clues on the monetary policy outlook.