Gold consolidates after sharp decline as higher-for-longer Fed outlook weighs

Gold (XAU/USD) fluctuates between gains and losses on Monday after opening the week lower and briefly falling below $4,400, its lowest level since August 19, during Asian trading hours. The metal retains a near-term bearish bias as hawkish Federal Reserve (Fed) expectations keep buyers cautious. At the time of writing, XAU/USD trades around $4,435, after reaching a more than three-month high of $4,697 last week.

The Yellow metal fell about 3.20% on Friday following Fed Chair Kevin Warsh’s speech at the Jackson Hole Symposium. Markets viewed Warsh’s remarks as hawkish, reviving expectations that the central bank could raise interest rates as soon as September and pushing the US Dollar (USD) and short-term US Treasury yields sharply higher.

Analysts at Rabobank point out that Warsh made clear that he is “open to further rate hikes unless underlying inflation began to improve convincingly,” underscoring that “we must be convinced that underlying inflation is moving toward our target clearly and at a sufficient pace. Otherwise, we still have work to do.”

According to the CME FedWatch tool, markets are now pricing in around a 66% chance of a September rate hike, up from roughly 38% before Warsh’s speech. A higher interest-rate environment reduces the attractiveness of Gold because the metal offers no yield.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.41, easing from 99.72, its highest level since August 14. The modest pullback in the Greenback lends some support to Gold, although US Treasury yields remain elevated near recent highs, with the benchmark 10-year yield climbing to around 4.75%, its highest level since January 2025.

Meanwhile, renewed US-Iran hostilities keep Oil prices elevated, adding upside risks to inflation. Iran said it attacked US bases in Jordan after US strikes on Larak Island. US President Donald Trump told Fox News that Washington would respond to Iran’s attack on US forces. US Treasury Secretary Scott Bessent said, “Operation Outcast will make Iran want to make a deal,” adding that “the goal is to create a condition where they want to come to the table.”

In the near term, expectations that the Fed's interest rates will stay higher for longer remain a key hurdle for Gold’s recovery, even as central-bank buying and geopolitical tensions provide underlying support. Gold is still on track to gain around 10% in August, largely driven by the US Treasury’s announcement that it would double liquidity-support buybacks of longer-dated government bonds.

Upcoming US economic data will be closely watched for fresh clues about the Fed’s monetary policy path, with the ISM Purchasing Managers Index (PMI) surveys and Nonfarm Payrolls (NFP) report among the key risk events this week.

Technical analysis: Momentum weakens after rejection near $4,700

XAU/USD maintains a slightly bearish near-term bias following the latest leg lower, with the metal falling back below the 200-day Simple Moving Average (SMA) at $4,528. The Relative Strength Index (RSI) on the daily chart has eased from overbought territory to around 52, pointing to fading bullish momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) has slipped marginally below its signal line, adding to signs of weakening upside pressure.

On the downside, initial support is located at the 100-day SMA at $4,370, followed by the 50-day SMA at $4,211. A sustained break below these levels could expose the horizontal floor near $4,000. On the upside, the 200-day SMA at $4,528 acts as immediate resistance, followed by the horizontal barrier at $4,700.

(The technical analysis of this story was written with the help of an AI tool. Know more.)