Gold prices (XAU/USD) fell to around $4,295 during the early Asian session on Tuesday, pressured by rising US Treasury yields and higher energy prices, which have intensified expectations for a US Federal Reserve interest rate hike this week [1]. The US 10-year Treasury yield surpassed 5% for the first time since 2023 on Monday, reflecting growing inflation concerns and increased government and corporate borrowing needs. This environment has created a headwind for non-yielding assets like gold [1].
Market participants are now pricing in a 92.4% probability that the Fed will raise interest rates by 25 basis points at its September policy meeting on Wednesday, according to the CME FedWatch tool [1]. Higher interest rates typically weigh on gold, as the metal does not pay interest and becomes less attractive compared to yield-bearing assets [1].
Strategists at OCBC noted that gold's recent rebound coincided with a pullback in key macro drivers, such as the easing of 10-year US Treasury yields from near-5% highs and a retreat in oil prices, which helped temper some inflation pressures [1]. OCBC maintains a constructive medium-term outlook for gold but cautions that the upcoming FOMC meeting is a critical test for whether the recovery can continue or if rate headwinds will reassert themselves [1].
From a technical perspective, gold remains capped below the 100-day simple moving average (SMA) and the 20-day Bollinger middle band, indicating medium-term resistance despite a longer-term uptrend [1]. The Relative Strength Index (14) has retreated to 44.35, suggesting fading bullish momentum and vulnerability to further downside. Key resistance levels are identified at the 100-day SMA ($4,330), the 20-day Bollinger SMA ($4,455), and the upper Bollinger band ($4,685). On the downside, the lower Bollinger band at approximately $4,230 offers the nearest technical support, with a break below this level potentially opening the path to a deeper correction [1].
Traders are closely watching the Fed's interest rate decision and subsequent press conference on Wednesday for further cues. Any dovish comments from Fed policymakers could help limit gold's losses in the near term [1].
CONCLUSION
Gold's decline below $4,300 reflects heightened expectations for a Fed rate hike, driven by surging US yields and inflation concerns. The upcoming FOMC meeting is seen as a pivotal event for gold's near-term direction, with technical indicators signaling vulnerability to further downside unless key resistance levels are reclaimed.