During Thursday's Asian trading session, spot gold briefly slipped below the $4,400 per ounce mark to around $4,390 before regaining upward momentum, moving further away from the one-week low touched in the previous session. However, the yellow metal still failed to surpass the key resistance level at $4,450, with bulls appearing hesitant ahead of the release of U.S. inflation data.

Dollar's Fate Hinges on CPI as Fed Decision Approaches

Prominent institutional strategists have emphasized that Friday's U.S. August CPI report serves as "the primary market driver determining the Federal Reserve's September 16 rate decision." They noted that "a hot CPI reading would nearly lock in a September rate hike and bolster dollar strength, while a moderate reading would reinforce the case for holding steady, subjecting the greenback to dovish repricing pressures." Market pricing currently implies roughly a 60% probability of a rate increase at the Fed's September 15-16 meeting, a bet that was bolstered by stronger-than-expected non-farm payroll data released last Friday. Furthermore, inflation risks stemming from persistently elevated energy prices have solidified expectations for immediate policy tightening.

Oil Prices and Geopolitical Risks Are Reinforcing This Narrative

Crude prices touched a three-month high earlier in the session amid further escalation of U.S.-Iran tensions—Tehran attacked 10 vessels near the Strait of Hormuz following Washington's announcement that it had sunk five Iranian oil tankers near the Gulf of Oman and Kharg Island. This has intensified concerns over prolonged disruptions to Middle East oil supplies and underpins oil prices, further strengthening the rationale for more hawkish stances among other major central banks. Indeed, traders have fully priced in a 25 basis point rate hike by the European Central Bank later in the day, as well as a move by the Bank of Japan at its September 17-18 meeting. Additionally, the Reserve Bank of Australia is also weighing a potential rate increase later this month.

Elevated Treasury Yields and Yen Strength Weigh on the Dollar

U.S. Treasury yields remained elevated after the Treasury Department's buyback announcement disappointed the market. The department raised its repurchase size for 10- to 20-year bonds from $2 billion to $6 billion, but media reports indicated expectations of at least $10 billion. However, yen strength driven by hawkish Bank of Japan expectations has kept dollar bulls on the defensive, acting as a key factor providing sustained support for gold prices. Broad dollar weakness offers a floor for gold, yet global central bank hawkish expectations fueled by inflation risks cap the metal's upside potential.

Institutional Outlook

Goldman Sachs research teams have maintained their spot gold target of $4,900 per ounce by the end of 2026 in a recent report. Analysts Lina Thomas and Daan Struyven pointed out that despite periodic pullbacks in gold prices, the upward trend is expected to persist in the second half of the year. Core support stems from continued central bank gold purchases aimed at diversifying foreign exchange reserves, with an estimated average monthly buying of around 50 tonnes by central banks in 2026—significantly above pre-2022 levels. Reduced expectations for Fed rate hikes would also diminish headwinds for gold. Meanwhile, investor hedging through gold derivatives may amplify short-term volatility, presenting two-way risks but also increasing upside potential. Goldman Sachs views the current correction as a mid-cycle consolidation rather than a trend reversal, identifying strong support near the $4,000 level and recommending opportunistic accumulation during periods of volatility.

J.P. Morgan has adjusted its average gold price forecast for the third quarter of 2026 to approximately $4,300 per ounce, rising to $4,500 in the fourth quarter, with risks skewed to the downside. The bank noted that temporary weakness in key demand areas—including some investor interest—alongside increased sensitivity of gold prices to changes in real interest rates may limit short-term gains. Should the Fed preemptively hike rates due to hotter-than-expected data, further downside pressure would expand. However, the institution maintains a constructive long-term view, believing the current correction represents only a temporary phase within a multi-year bull market. Continued central bank purchases, recovering physical demand, and structural allocation needs will drive gold prices higher into 2027. J.P. Morgan emphasized that once macroeconomic uncertainties clear, demand is poised to re-accelerate, with the potential for the gold price center to shift upward.

Summary

Spot gold currently trades above the $4,400 level, but the key resistance at $4,450 remains unbroken, with bulls staying cautious ahead of inflation data. The dollar faces pressure from yen strength, providing underlying support for gold; however, inflation-driven hawkish expectations among global central banks—with the ECB, BOJ, and RBA all under pressure to hike—limit upside potential. Friday's U.S. CPI report will serve as the decisive variable for the Fed's September rate decision: a hot reading would support the dollar and suppress gold, while a moderate reading could propel prices beyond the $4,450 barrier.

As of 14:56 Beijing time, spot gold was quoted at $4,424.79 per ounce.