Gold (XAU/USD) edged higher on Tuesday, recovering a small portion of the previous day’s decline, but the metal continued to trade near its lowest level in more than a month. The bounce was tentative, with a stronger US Dollar and a surge in Treasury yields to multi-year highs limiting any upside ahead of the Federal Reserve’s monetary policy decision on Wednesday.
At the time of writing, XAU/USD was trading around $4,290, having touched $4,253 on Monday — its lowest since mid-August. The benchmark 10-year US Treasury yield climbed to 5.04% on Tuesday, a level not seen since 2007, before easing to near 4.99%. Higher yields increase the opportunity cost of holding gold, which offers no interest, while also supporting demand for the US Dollar.
The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, stood near 99.60, close to two-week highs. The dollar’s strength was driven by expectations that the Fed will raise interest rates for the first time since 2023 when it concludes its two-day meeting on Wednesday.
Why yields and the dollar are rising
The sell-off in government bonds is not confined to the United States. Borrowing costs across several major economies have climbed to multi-year highs, reflecting a mix of monetary tightening expectations and fiscal concerns. Much of the pressure stems from the energy shock linked to the war in the Middle East, which has pushed oil prices higher and added to inflation worries.
Inflation in the US remains above the Fed’s 2% target. The headline Consumer Price Index (CPI) stood at 3.4% year on year in August, while the Producer Price Index (PPI) accelerated to 5.4% from 4.8% in July. Recent Fed communication has stressed the need to bring inflation back to target, reinforcing market expectations of a rate hike.
Much of the hawkish risk may already be priced into gold. However, the metal could come under renewed selling pressure if the Fed signals that Wednesday’s move marks the start of a broader tightening cycle. Attention will focus on the updated economic projections and comments from Fed Chairman Kevin Warsh on the path of interest rates.
Technical picture: bearish bias intact
On the daily chart, XAU/USD continues to trade below both its 100-day and 200-day Simple Moving Averages (SMA), a sign of sustained bearish momentum. The metal is hovering just above the 50-day SMA at about $4,275, which is providing tentative support. The Relative Strength Index (RSI) is near 43, indicating bearish territory, and the Moving Average Convergence Divergence (MACD) histogram is negative and declining.
Immediate resistance lies at the 100-day SMA near $4,328, followed by the 200-day SMA around $4,539 and the horizontal barrier at $4,700. On the downside, a break below the 50-day SMA at $4,275 would expose the next floors at $4,150 and $4,000.
Underlying demand remains steady
Despite near-term headwinds, central bank purchases, retail investment and demand via gold-backed exchange-traded funds (ETFs) continue to provide a foundation of support. Rising global bond yields, driven partly by concerns over fiscal sustainability and heavy government borrowing, could eventually revive demand for gold as an alternative store of value if confidence in sovereign debt weakens.
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Key takeaways
- Gold traded near $4,290, above Monday’s one-month low of $4,253 but under pressure from a strong US Dollar and rising yields.
- The 10-year US Treasury yield reached 5.04%, its highest since 2007, before easing to near 4.99%.
- Markets widely expect the Fed to raise interest rates on Wednesday for the first time since 2023.
- Technical indicators show bearish momentum, with key support at $4,275 and resistance at $4,328.
Common questions
Why does rising Treasury yields pressure gold prices?
Higher yields increase the opportunity cost of holding gold, which offers no yield. They also attract capital into interest-bearing assets and support the US Dollar, which is inversely correlated with gold.
What is the US Dollar Index (DXY)?
The US Dollar Index measures the value of the US Dollar against a basket of six major currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. A rising DXY typically weighs on gold.
What does a hawkish Fed mean for gold?
A hawkish stance — signalling higher interest rates or tighter monetary policy — tends to strengthen the US Dollar and push bond yields higher, both of which are negative for gold prices in the short term.
Gold’s direction in the coming days will depend largely on the Fed’s tone and the trajectory of yields. While the immediate outlook is cautious, the structural factors that support long-term demand for the metal remain in place.