Gold rebounds above $4,350 as US Dollar, Treasury yields slip
- Gold price recovers to near $4,385 in Thursday’s early Asian session.
- Hostilities between the US and Iran escalated, which might cap gold’s upside.
- Traders are pricing in a 62.3% chance of a Fed rate increase this month.
Gold price (XAU/USD) rebounds from a nearly one-month low to around $4,385 during the early Asian session on Thursday. The precious metal edges higher as the US Dollar (USD) and Treasury yields retreat from recent highs. All eyes will be on the US August Nonfarm Payrolls (NFP) data, which is due later on Friday.
US Treasury yields eased after a surge to multi-year highs in the previous session. Federal Reserve (Fed) Bank of New York President John Williams said that rising long-term bond yields are not driven by inflation fears but are instead a reflection of a solid economy.
"One of the reasons that gold has been able to move back above unchanged is we have seen a little tick down in yields for the day and that has allowed gold to bounce off some of the recent lows," said David Meger, director of metals trading at High Ridge Futures.
However, rising tensions in the Middle East could raise energy-driven inflation concerns and boost the prospect of Fed rate hikes in the coming months. This, in turn, might cap the upside for the yellow metal. Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.
Traders are now pricing in a 62.3% probability of an interest rate hike at the Fed's policy meeting this month, according to the CME FedWatch tool.
The US launched new airstrikes on Iranian targets, prompting counter strikes by Tehran targeting US interests in Bahrain, Kuwait, Jordan and Iraq, and fuelling concerns about a wider renewal of hostilities.
US President Donald Trump said that the US had launched a wave of “large and powerful” strikes on Iranian targets near the Strait of Hormuz in retaliation for what he said was a “failed attempt” at laying mines along the vital trade route.
Gold slips as higher oil and Middle East tensions curb Fed easing hopes
Commodities strategists at ING report that gold prices have "eased to a two-week low, slipping below $4,300/oz," as escalating tensions in the Middle East have pushed oil prices higher and forced markets to "reassess the outlook for US interest rates." They caution that rising energy costs "could add to inflationary pressures and reduce the scope for near-term Federal Reserve easing," a backdrop that is seen "weighing on non-yielding assets such as gold."
Williams flags strong economy behind higher yields as inflation trend cools
Fed's Williams delivered a mildly less hawkish tone, with a 6/10 FXS Speechtracker score only marginally above the historical average of 5.9/10, as the emphasis shifted toward a strong economy and contained inflation expectations rather than fresh inflation fears. By stressing that rising yields are driven by robust growth, strong investment demand, and geopolitical factors such as Middle East conflict and tariffs—while underscoring a trend toward lower inflation and stable labor markets—Williams framed current financial conditions as tight but not disorderly, keeping the focus on achieving 2% inflation as the primary mandate.
The FXS Fed Sentiment Index slipped by 1.42 points to 127.44, signaling a modest pullback in perceived hawkishness despite remaining firmly above the neutral 100 line. This configuration suggests that, even with a softer edge to the latest remarks, the broader Fed stance still resides in hawkish territory, consistent with elevated yields and a data-dependent path toward the 2% inflation goal as tracked by the FXS Speechtracker.
Technical Analysis: Gold retains a modest bullish tone above the 100-day SMA
In the daily chart, XAU/USD holds above the 100-day simple moving average (SMA), keeping a constructive bullish bias despite consolidating below the Bollinger middle band. The 14-day Relative Strength Index (RSI) hovers near 50, hinting at neutral short-term momentum that could tilt higher while price remains supported above the 100-day SMA.
On the topside, initial resistance is located at the Bollinger middle band around $4,450, with the upper Bollinger band near $4,685 acting as a subsequent hurdle if buyers regain control. On the downside, immediate support is seen at the 100-day SMA at $4,360, ahead of the lower Bollinger band near $4,215, where a deeper pullback would be expected to attract dip-buying interest as long as the broader bullish structure holds.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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