Gold bounced back sharply during the US session on Wednesday, erasing all earlier declines. The sudden strength in the yen triggered broad dollar selling, and with US Treasury yields pulling back, the precious metal received a dual boost. At the time of writing, spot gold traded near $4,373, up nearly 1.0% on the day, after earlier sinking to an intraday low of $4,282—its weakest level since August 7.

USD/JPY tumbled sharply in the US session after the pair had earlier approached the 160 mark, fueling speculation that Japanese authorities had once again stepped into the forex market. The yen's strength spilled over into all yen crosses, with EUR/JPY, GBP/JPY, and AUD/JPY all posting steep declines. However, no official confirmation of intervention has been provided so far.

Soft US labor market data added to the dollar's woes. The ADP private payroll report showed private sector jobs increased by just 38,000 in August, below the market expectation of 47,000 and down from the prior reading of 46,000. The dollar index (DXY) hovered near 99.55, retreating from the August 14 high of 99.86, down 0.12% on the day.

Despite the short-term recovery in gold, the overall outlook remains challenging. After several weeks of relative calm, the Middle East conflict has reignited, oil prices are climbing, inflation concerns are resurfacing, and global bonds are being sold off. The US 10-year Treasury yield touched 4.81%, the highest since October 2023, before easing back to around 4.79%. Higher yields raise the opportunity cost of holding non-yielding assets like gold, weighing on prices.

New York Fed President John Williams said on Wednesday: "The rise in yields stems from strong economic fundamentals and a favorable economic outlook, not driven by inflation expectations." He also noted some connection between bond yield movements and the Middle East conflict.

On the monetary policy front, markets have ramped up bets on a Fed rate hike as soon as September. Last week, Fed Chair Kevin Warsh struck a hawkish tone on inflation at the Jackson Hole symposium, further reinforcing expectations of a hike. The CME FedWatch tool now shows a roughly 64% probability of a rate hike at the September 15-16 meeting, up from just 36% a week ago.

Against this backdrop, gold could extend its recovery in the near term if the dollar selling persists. However, hawkish Fed expectations, elevated Treasury yields, and the inflation risk from the Middle East conflict will likely cap further upside. Traders now turn their focus to Friday's US nonfarm payrolls report, which could shift market views on the Fed's rate path and drive the next leg for the dollar, Treasury yields, and gold.

Technical analysis: Bears struggle to break 100-day support

Spot gold is currently holding just above the 100-day simple moving average near $4,361, forming a fragile downside defense, though prices remain below the middle Bollinger Band at approximately $4,450. The daily RSI is hovering around the 50 midpoint, while the MACD histogram stays in negative territory—both indicators suggest weakening bullish momentum, with gold in a neutral, range-bound stance.

To the upside, the first resistance sits at the 20-period Bollinger Band of $4,450. If bulls reclaim control, the next key resistance is the upper Bollinger Band at $4,685. On the downside, the 100-day MA at $4,361 provides immediate support, followed by the lower Bollinger Band at $4,215. Should selling pressure intensify and gold extend its slide, the next major support level lies at the $4,000 psychological handle.