Gold extends intraday losses below $4,200, fresh low since August 5 on Fed hike bets
- Gold kicks off the new week on a downbeat note amid rising October Fed rate hike bets.
- Oil-driven inflation risks keep US bond yields elevated, further undermining the commodity.
- The US-Iran standoff acts as a tailwind for the safe-haven USD, favouring XAU/USD bears.
Gold (XAU/USD) adds to heavy intraday losses, hitting a fresh low since August 5, around the $4,169-$4,168 region heading into the European session on Monday amid a bearish fundamental backdrop. Against the backdrop of the US Federal Reserve's (Fed) hawkish outlook earlier this month, oil-driven inflation fears keep US bond yields pinned near multi-year highs. This, in turn, is seen as a key factor driving flows away from the non-yielding bullion.
The Fed raised its benchmark interest rate in mid-September 2026—its first rate increase in three years—and signaled that another hike is likely before the end of this year. Moreover, Fed speakers are leaning toward potential further policy tightening amid inflation risks stemming from rising energy prices. According to CME Group's FedWatch Tool, traders are currently pricing in around a 68% chance that the US central bank will raise borrowing costs in October.
USD supported as Fed hawks keep tightening risks in focus
Strategists at OCBC note that “resilient US economic data, elevated energy prices and persistent inflation concerns continue to drive Treasury yields higher,” a backdrop that is “underpinning the USD while weighing on rate-sensitive and carry-oriented assets.” They add that “recent Fed rhetoric has also remained hawkish,” pointing to comments from New York Fed President Williams and Cleveland Fed President Hammack, who “warned that inflation risks remain skewed to the upside,” while Philadelphia Fed President Paulson cautioned that “modest further tightening may still be warranted if inflation fails to moderate.” In their view, this is reflected in current market pricing, which “implies around a 70% probability of another 25bp rate hike in October, highlighting the market's growing conviction that the Fed's inflation fight is not yet over.”
Adding to this, geopolitical uncertainties act as a tailwind for the US Dollar (USD), which exerts additional pressure on the commodity. In the latest developments surrounding the Middle East crisis, US President Donald Trump on Saturday rejected an Iranian proposal to reopen the Strait of Hormuz immediately on meeting their terms and end fighting. Trump added on Sunday that additional military strikes on Iran were possible before the midterm elections in the US.
Furthermore, Houthis continued their attacks on Saudi Arabia, while Yemen’s government forces intensified attacks against the Iran-backed group, conducting multiple air and ground operations. This adds to worries about a broader regional conflict, prompting traders to again price in the geopolitical risk premium. This, in turn, supports oil prices and underpins the safe-haven Greenback, which backs the case for a further depreciating move for the Gold price.
Traders now look forward to speeches from FOMC members, which, along with the incoming geopolitical headlines, will drive the USD and the XAU/USD pair. Traders this week will further confront the release of the US Personal Consumption Expenditures (PCE) Price Index and the final Q2 GDP print on Wednesday, ahead of the popularly known US Nonfarm Payrolls (NFP) report on Friday, which will influence Fed hike expectations and provide a fresh impetus.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair confirms a fresh breakdown below the 61.8% Fibonacci retracement level of the June-August upswing following the recent repeated failures near the 100-period Exponential Moving Average (EMA). Moreover, the Moving Average Convergence Divergence (MACD) indicator remains negative with a declining profile, while the Relative Strength Index (RSI) has slipped toward 38, hinting at persistent selling pressure.
Meanwhile, any further slide could find some support at the 78.6% retracement at $4,099, ahead of a more substantial structural floor at the prior swing low near $3,939, where sellers may begin to hesitate. On the topside, initial resistance is seen at the 61.8% Fibo. retracement at $4,226, followed by the 50.0% retracement at $4,314 and the 100-period EMA at $4,352, with higher hurdles at $4,403 and $4,513.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
