Gold hits fresh high since mid-May as lower bond yields and fading Fed bets undermine USD
- Gold attracts some follow-through buying as receding Fed hike bets keep USD depressed.
- The US Treasury's buyback plan drags US bond yields lower and further benefits the bullion.
- Geopolitical risks limit USD losses ahead of this week’s US PCE and Fed Chair Warsh’s speech.
Gold (XAU/USD) builds on last week's breakout momentum above a technically significant 200-day Simple Moving Average (SMA) and climbs above $4,650 during the Asian session on Monday, hitting a fresh high since mid-May. The US Dollar (USD) languishes near an over three-month low amid receding bets for an immediate interest rate hike by the US Federal Reserve (Fed) and softer US Treasury bond yields, which, in turn, lend support to the non-yielding bullion.
Tamer July US inflation data cooled expectations for near-term Fed policy tightening. Consequently, market expectations have shifted toward a policy hold at the upcoming September 15–16 FOMC meeting. Adding to this, US Treasury Secretary Scott Bessent showed readiness to intervene more aggressively as bond yields moved higher than before the buyback announcement. In fact, the US Department of the Treasury said last Wednesday that it would at least double buyback operations for long-dated government debt starting in September. Bessent reassured markets that the size of the buyback could be more than the $4 billion per issue. This keeps US bond yields depressed below a multi-year peak and fails to assist the USD to register any meaningful recovery.
Meanwhile, markets are still pricing in over a 70% chance that the US central bank will raise borrowing costs at least once by the end of this year amid inflation risks stemming from volatile oil prices. Hence, the focus shifts to the release of the US Personal Consumption Expenditures (PCE) Price Index on Wednesday. Apart from this, Fed Chair Kevin Warsh's speech at the Jackson Hole Symposium will be scrutinized for cues about the central bank's future policy path, which, in turn, should provide some meaningful impetus to the USD and drive the Gold price. In the meantime, geopolitical uncertainties could support the safe-haven buck.
US Treasury Secretary Scott Bessent is due to announce what he has called the toughest sanctions in history on Iran at a press conference on Monday. Iran's Supreme National Security Council secretary, Mohsen Rezaei, responded by warning that the Islamic Republic would halt all oil exports through the Strait of Hormuz and anywhere else in the Persian Gulf if economic war continues. Rezaei added that any country's participation in the US sanctions would be treated as an act of war against Iran. This, in turn, keeps the war-risk premium in play, which limits the downside for the Greenback and might keep a lid on the Gold price, warranting caution for bulls.
XAU/USD daily chart
Technical Analysis
Friday's close above the $4,615-$4,620 confluence – comprising the 200-day SMA and the 61.8% Fibonacci retracement level of the April-June decline – was seen as a fresh trigger for XAU/USD bulls. Adding to this, the Moving Average Convergence Divergence (MACD) indicator stays in positive territory with rising values, hinting at persistent upward momentum. However, the Relative Strength Index (RSI) at 71.77 shows overbought conditions that could limit immediate upside.
Hence, any subsequent move up could face initial resistance at the 78.6% Fibo. retracement near $4,684.43, above which Gold could aim to test the cycle high around $4,891.38. On the downside, the first meaningful support emerges from the 61.8% Fibo. retracement at $4,521.97, reinforced by the 200-day SMA at $4,516.88, with deeper structural floors seen at the 50% retracement at $4,407.86 and the 38.2% level at $4,293.75.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of 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.
