$4,100: For how long can Gold defend that level?
- Gold resumes the recent downtrend, approaching $4,100 early Tuesday.
- The US Dollar consolidates near 17-month highs amid high Treasury yields and a rebound in oil prices.
- From a short-term technical view, Gold’s path of least resistance appears to be down.
Gold is looking to threaten the $4,100 level early Tuesday, resuming its recent downtrend from above $4,200.
Gold bears the brunt of higher yields
The broader fundamental backdrop remains favorable for Gold amid rising government debt levels and geopolitical instability worldwide, as the bright metal remains the ultimate hedge and store of value against debasement trades.
Two European central bankers said on Monday that Gold remains a strategic reserve asset as concerns over rising government debt and geopolitical instability boost its appeal as a haven from risk, per Reuters.
However, in the near term, Gold sellers are in control amid elevated US Treasury bond yields and a firmer US Dollar (USD), even as markets almost price out an October Federal Reserve (Fed) interest rate hike.
Analysts at OCBC argue that bullion remains constrained by the rates backdrop, noting that they are "still waiting for yields to turn." They highlight that Gold’s brief "post-US payrolls rebound faded quickly despite a softer US labour report and a further pullback in October Fed hike expectations." In their view, the "key issue is that long-end yields did not fall sustainably and the USD stayed firm, limiting follow-through in gold," leaving the metal without the sustained decline in yields and Dollar weakness needed for a more durable recovery.
The 10- and 30-year US Treasury bond yields hit 24-year highs on Monday as the bond market rout extended. This, combined with robust US ISM Services PMI Price Paid, a sub-index, climbing to its highest level in over four years, suggests inflation could remain elevated into 2027.
Despite surging Treasury bond yields, the Greenback faced headwinds from a tech-inspired rally in the Nasdaq to record highs, which lifted broader market sentiment.
The late pullback in the USD helped Gold cushion its downside after retreating from the $4,170 region.
In Tuesday’s trading so far, the USD is picking fresh bids, tracking higher yields and a rebound in Oil prices, reinforcing the bearish undertone in Gold.
Later in the day, speeches from Fed policymakers, geopolitical developments-induced Oil price action, and US Treasury yields will continue to play a pivotal part in Gold’s near-term direction.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,139.80. The metal remains under clear downside pressure as it holds below the 50-day simple moving average (SMA) at $4,330.10, the 100-day SMA at $4,271.35 and the 200-day SMA at $4,531.81, keeping the near-term bias bearish and the broader trend capped. The Relative Strength Index (14) at 38 sits in weak territory, hinting that sellers still have the upper hand while momentum is not yet oversold.
On the topside, initial resistance is seen at the 100-day SMA near $4,271.35, followed by the 50-day SMA at $4,330.10, while the 200-day SMA at $4,531.81 marks a more distant barrier and the upper edge of the prevailing bearish structure. On the downside, the next significant support aligns with the rising trend-line area around $3,999.65, where buyers may attempt to slow the decline if the current weakness extends.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
