Gold stabilised on Tuesday after a sharp sell-off at the start of the week, as traders continued to assess the outlook for Federal Reserve interest rate increases and ongoing geopolitical risks in the Middle East. The precious metal was trading around $4,154 per troy ounce, up 0.95% on the day, having fallen nearly 4% on Monday to a low of $4,110, its weakest since August 5.
What drove Monday's decline?
The drop was triggered by a surge in US Treasury yields, with the benchmark 10-year note reaching 5.28%, its highest level since 2007. Higher yields increase the opportunity cost of holding gold, which pays no interest. The yield move was fuelled by inflation concerns linked to elevated oil prices amid the ongoing standoff over the Strait of Hormuz. Additionally, the US dollar strengthened on expectations of further Fed tightening, making gold more expensive for overseas buyers. The US Dollar Index traded near 101.50, close to two-month highs.
Fed rate hike expectations remain elevated
Markets are pricing in around a 70% probability of another 25-basis-point rate increase in October, according to the CME FedWatch Tool, after the Fed raised rates earlier this month. The hawkish stance has kept the dollar well supported. Weaker-than-expected US data on Tuesday, including the Conference Board consumer confidence index falling to 81.9 and JOLTS job openings declining to 7.079 million, did little to dent the dollar's strength. Traders are now looking ahead to the PCE price index, ISM manufacturing PMI, and nonfarm payrolls later this week for further clues.
Middle East tensions persist
The geopolitical backdrop remains uncertain. Iranian Foreign Minister Abbas Araghchi said Tehran held indirect talks with the US through Qatari mediators in New York, and Iran is awaiting a formal US response to its proposal to reopen the Strait of Hormuz. However, President Donald Trump denied reports that his administration had offered sanctions relief, stating that Washington had offered 'nothing' to end the conflict. With the war in its eighth month and both sides far apart, disruptions around the key oil shipping route could continue, keeping oil prices elevated and adding to inflationary pressures.
Technical analysis: bearish bias intact
On the daily chart, gold remains capped below the Bollinger Bands. The 14-period relative strength index at 37 hovers just above oversold territory, while the MACD is firmly negative, suggesting persistent selling pressure. The average directional index at 18 points to a weak trend. Immediate resistance lies at the lower Bollinger band near $4,158, followed by the middle band at $4,326 and the upper band at $4,493. On the downside, support is seen at $4,100 and $4,000. A sustained break below these levels could open the door to further losses, while holding above them might allow for short-covering towards the Bollinger barriers.
Key takeaways
- Gold steadied near $4,154 after a near-4% drop on Monday, as traders weigh Fed rate hike prospects.
- US Treasury yields hit multi-year highs, boosting the dollar and pressuring gold.
- Middle East tensions remain unresolved, keeping oil prices elevated and adding to inflation concerns.
- Technical indicators show a bearish near-term outlook, with key support at $4,100 and $4,000.
Common questions
Why did gold fall sharply on Monday?
Gold fell nearly 4% on Monday as US Treasury yields surged to their highest since 2007, increasing the opportunity cost of holding the non-yielding metal. The dollar also strengthened on expectations of further Fed rate hikes.
What is the Fed's rate outlook?
Markets see a 70% probability of a 25-basis-point rate increase in October, according to the CME FedWatch Tool, after the Fed raised rates earlier this month.
How do Middle East tensions affect gold?
The standoff over the Strait of Hormuz has kept oil prices elevated, fuelling inflation concerns that support higher US yields and a hawkish Fed stance, which in turn weigh on gold.
What are the key technical levels for gold?
Immediate resistance is at $4,158 (lower Bollinger band), then $4,326 and $4,493. Support lies at $4,100 and $4,000.
Gold's near-term direction will depend on upcoming US economic data and any developments in the Middle East that could shift the inflation and rate outlook. For the latest price, see the live gold price.