On Wednesday, as the dollar strengthened and the market was overshadowed by the uncertainty before the release of the key US inflation report, spot gold came under pressure and fell below the 2500 mark, with an intraday decline reaching 1%. Spot silver fell by more than 2% intraday. However, the prospect of a Fed rate cut and the tensions in the Middle East may help limit its decline.

The US dollar index rose by over 0.5%, reducing the attractiveness of commodities priced in dollars to buyers using other currencies. The US dollar index had previously hit its lowest level in over a year.

A gold trader said, "There are many variables today, such as the risk events like nvidia (NVDA) earnings, and the market is still waiting for more clues about US interest rates. The Fed's cautious attitude now is correct and not helpful to people finding direction. Today, cash is king."

The focus for the market is the US personal consumption expenditure (PCE) data to be released on Friday, which is the Fed's preferred inflation indicator. Prior to this, investors will get more hints about the US interest rate trend from speeches by Fed Governor Waller and Atlanta Fed President Bostic on Wednesday local time.

So far this year, gold has risen by 21%, marking the largest annual gain since 2020. Factors supporting the rise of gold include the expected Fed rate cut, safe-haven demand due to geopolitical and economic uncertainty, and strong purchases by central banks around the world.

The spot gold price hit a historic high of $2531.60 on August 20. This rebound began in March, initially driven by strong demand from China, until high prices suppressed Chinese imports and shifted the focus to purchases by Western investors.

With the widespread expectation that the Fed will actively cut interest rates, physically-backed gold exchange-traded funds (ETFs) have begun to purchase gold again after experiencing years of outflows, gaining inflows for the fourth consecutive month in August.

According to the data from the World Gold Council, gold ETFs saw a slight net inflow of 8 metric tons (approximately $0.403 billion) last week, led by North American funds.

Carsten Fritsch, a commodities strategist at Deutsche Bank, pointed out that speculative investors' net long positions in gold rose to approximately 0.193 million contracts in the week ending August 20.

Analysts at the financial website Fxstreet stated that gold is still constrained by the upper boundary of the rising channel and historical highs from five months ago. However, it remains above the key 100-day moving average (EMA) on the daily chart, thus maintaining its broader positive outlook. The 14-day relative strength index (RSI) is above the midpoint at around 64.70, providing support for the upward momentum and indicating that the bullish momentum is still intact in the near term.

Analysts point out that the key resistance level for gold is at $2530, which is the intersection of the upper boundary of the rising channel and the historical high. If this level is broken, there is a possibility of testing the psychological level of $2600. On the downside, the initial support level is at the round number of $2500. If it breaks below this level, it may further decline to around $2470, which was the low point on August 22. The next support level is at $2432, which was the low point on August 15.