Gold falls below $4,300 as higher US yields bolster Fed rate hike bets
- Gold price slumps to around $4,295 in Tuesday’s early Asian session.
- Higher Treasury yields and hawkish monetary policy expectations weigh on the Gold price.
- Probability for a September rate hike jumped to nearly 92.4%.
Gold price (XAU/USD) tumbles to near $4,295 during the early Asian session on Tuesday. The precious metal faces some selling pressure as rising bond yields and surging energy prices strengthen expectations that the US Federal Reserve (Fed) will raise interest rates this week.
The US 10-year Treasury yield surpassed 5% for the first time since 2023 on Monday, as mounting inflation angst collided with swelling government and corporate borrowing needs. This, in turn, creates a headwind for non-yielding gold.
The latest US inflation data and elevated energy prices have reinforced markets to significantly increase their bets on tighter monetary policy. Markets are now pricing in nearly a 92.4% chance that the Fed will raise interest rates by 25 basis points (bps) at its September policy meeting on Wednesday, according to the CME FedWatch tool.
Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.
The Fed interest rate decision will be in the spotlight later on Wednesday. Traders will take more cues from the Fed Chair Press Conference after the policy meeting. Any dovish comments from Fed policymakers could help limit gold’s losses in the near term.
Gold steadies as US yields and oil retreat ahead of key FOMC test
Strategists at OCBC note that gold’s latest rebound has coincided with a pullback in key macro drivers, as “10y UST yields eased back from near-5% highs, while oil prices also retreated from earlier peaks, helping to temper some of the inflation pressure that had weighed on bullion.” Against this backdrop, the bank “retain[s] a constructive medium-term bias,” but cautions that the “upcoming FOMC [is] now the key test for whether the recovery can extend or the rates headwind reasserts itself.”
Technical Analysis: Gold remains capped under the 100-day SMA
In the daily chart, XAU/USD extends a pullback after failing to hold the recent highs and now sitting beneath its key trend markers. Spot gold is trading below the 100-day simple moving average (SMA) and also under the 20-day Bollinger middle band, which suggests the metal is currently capped by medium-term resistance despite the longer-term uptrend. The Relative Strength Index (14) at 44.35 has retreated toward neutral territory, hinting that bullish momentum has faded and leaving prices vulnerable to additional downside while those overhead levels remain intact.
On the topside, initial resistance emerges at the 100-day SMA around $4,330, followed by the 20-day Bollinger SMA at $4,455, with the upper Bollinger band near $4,685, marking a stronger barrier if buyers regain control. On the downside, the lower Bollinger band at roughly $4,230 offers the nearest technical support; a clear break below this zone would open the path toward a deeper correction, while a sustained hold above it would keep XAU/USD in a consolidative mode beneath the cited moving-average resistance.
(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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