Gold falls as Fed rate hike bets, rising Oil push Treasury yields to 5%
- Gold starts the week under pressure as traders gear up for the Fed’s monetary policy meeting.
- Rising Oil prices, a stronger US Dollar and elevated Treasury yields weigh on the metal.
- Technically, XAU/USD trades between the 50-day and 100-day SMAs, keeping the near-term bias range-bound.
Gold (XAU/USD) remains on the back foot on Monday as Federal Reserve (Fed) interest rate hike expectations dominate market sentiment ahead of the two-day monetary policy meeting starting on Tuesday.
At the time of writing, XAU/USD trades around $4,290, down 1.30% on the day, after touching an intraday low of $4,253, its lowest level since August 7.
Friday’s US Consumer Price Index (CPI) report all but cemented the case for a quarter-point rate increase this week. Data released by the US Bureau of Labor Statistics showed that headline CPI rose 0.4% MoM in August, accelerating from 0.1% in July, while core CPI increased 0.3% during the same period, up from 0.2% and marking its fastest pace in four months.
According to the CME FedWatch Tool, markets now price in an 89% probability of a rate hike, up from around 59.4% a week ago.
Rising Oil prices are reinforcing expectations of a hawkish Fed outcome as the war in the Middle East escalates. Supply risks are spreading beyond the Strait of Hormuz to the Red Sea, where the Iran-aligned Houthis have increased their presence near the crucial Bab el-Mandeb shipping route. West Texas Intermediate (WTI) Oil trades around $99.00, near levels last seen on May 21, and has gained over 15% so far this month.
Expectations of higher borrowing costs in the US, alongside elevated geopolitical tensions, are also supporting demand for the US Dollar (USD), while US Treasury yields remain elevated across the curve.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.53, up 0.55% on the day and at its highest level since September 3. Meanwhile, the benchmark 10-year US Treasury yield hovers near 4.97% after briefly touching 5.00%, its highest level since October 2023.
"Gold is leaning to the lower border of the current trading range, having been pressured by the rising yields and new oil peaks," said Stanislav Bernukhov, trading content specialist at Exness. "The technical dynamics of gold seems to stay range-bound despite the risk-off skew in the market regime," he added.
Since the war in the Middle East broke out, the metal appears to have partly decoupled from its traditional safe-haven role, with price action increasingly driven by interest rate expectations rather than geopolitical tensions.
As a result, a Fed rate hike accompanied by hawkish guidance could leave Gold vulnerable to further weakness. Conversely, a surprise hold would likely weigh on the US Dollar and Treasury yields, giving the precious metal room to rebound.
Technical analysis: XAU/USD struggles below 100-day SMA
On the daily chart, XAU/USD is trading between the 50-day Simple Moving Average (SMA) at $4,271 and the 100-day SMA at $4,33, pointing to a near-term range-bound phase with a mild bearish bias.
Momentum indicators also point to consolidation rather than a strong directional move. The Relative Strength Index (RSI) sits in the mid-40s, while the Average Directional Index (ADX) has eased toward the low-20s, suggesting weak trend strength. The Moving Average Convergence Divergence (MACD) remains below zero, indicating that sellers still hold a modest advantage.
On the downside, the 50-day SMA near $4,272 acts as immediate support. A daily close below this level would increase bearish pressure and expose $4,150, followed by the $4,000 psychological mark.
On the topside, initial resistance comes at the 100-day SMA at $4,331, followed by the 200-day SMA near $4,538, while a more distant horizontal barrier sits at $4,700. A daily close back above the 100-day SMA would be the first sign that buyers are regaining control.
(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
Vishal Chaturvedi
FXStreet
I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.
