US Dollar Buying Caps Gold Prices Amid Stronger US Economy

Gold prices are being weighed down by unabated US Dollar buying despite softer-than-expected inflation data in the United States. The Personal Consumption Expenditures (PCE) Price Index rose 3.4% YoY in August, matching July's downwardly revised reading but falling short of estimates.

The mixed signal from inflation data has tempered pressure on the Federal Reserve to raise interest rates in October, but Societe Generale's Jan Groen cautions that underlying price pressures remain too elevated for clear comfort. The economy's stronger-than-expected momentum in the second half of 2026 and ongoing oil-driven inflation risks keep US bond yields elevated and underpin the USD.

As a result, gold remains capped near $4,300 due to its inverse correlation with the US Dollar and US Treasuries. Traders are pricing in an over 85% chance that the Fed will raise borrowing costs by the end of this year, according to CME Group's FedWatch Tool.

The ongoing geopolitical risks, including the US-Iran standoff, also favor USD bulls and keep a lid on gold prices. The XAU/USD pair remains lodged within a downward-sloping parallel channel, with its upper boundary coinciding with the 100-period Simple Moving Average (SMA) at $4,300.