Gold prices (XAU/USD) remained flat near $4,140 during the early Asian session on Tuesday, as the pressure from a stronger US Dollar and elevated US Treasury yields was counterbalanced by reduced expectations of a Federal Reserve rate hike this month [1]. The benchmark 10-year Treasury yield climbed about 7 basis points to 5.349%, reaching its highest level since April 3, 2002, before retreating to 5.30%. The 30-year Treasury bond yield also rose about 3 basis points to 5.661%, after earlier touching 5.703%, a level not seen since late May 2002 [1]. Higher yields typically diminish gold's appeal relative to yield-bearing assets like Treasuries [1].
Market analyst Fawad Razaqzada noted, 'We could see a near-term drop (in gold prices) before the buyers step in a meaningful way, and it's all to do with the fact that the dollar has been climbing higher and yields are elevated' [1]. Expectations for a Fed rate hike in October have eased, with interest-rate swaps showing traders pricing in an almost 22.7% chance of a rate increase at the upcoming meeting, according to the CME FedWatch tool [1]. This shift followed weaker-than-expected US Nonfarm Payrolls data for September and downward revisions to the prior two months' figures [1].
Analysts at OCBC highlighted that gold's recovery remains constrained by the broader rates backdrop, stating that 'gold is still waiting for yields to turn.' They observed that gold’s brief rebound after the US payrolls report faded quickly, as long-end yields did not fall sustainably and the US Dollar remained firm, limiting further gains in gold [1]. OCBC emphasized that a more sustained decline in yields and the US Dollar would be necessary for a firmer gold recovery, while elevated oil prices continue to complicate the inflation outlook [1].
Looking ahead, traders are awaiting the minutes of the September Federal Open Market Committee (FOMC) meeting, due on Wednesday, which could provide further insight into the Fed's future monetary policy direction after last month's rate hike—the first in three years [1]. OCBC cautioned that in the near term, gold may remain vulnerable to consolidation if yields stay high, with a clearer decline in yields and the US Dollar seen as prerequisites for a stronger recovery [1].
CONCLUSION
Gold prices are currently constrained by elevated US yields and a strong US Dollar, with market participants awaiting further signals from the upcoming FOMC meeting minutes. While the risk of an immediate Fed rate hike has diminished, analysts suggest that a sustained drop in yields and the Dollar is needed for gold to recover meaningfully.