Gold declines below $4,300 as US yields climb, Fed rate decision looms
- Gold price edges lower to around $4,285 in Wednesday’s early Asian session.
- The US 10-year Treasury yield hits its highest level since 2007.
- Fed is expected to raise the interest rate at its September meeting on Wednesday.
Gold price (XAU/USD) declines to near $4,285 during the early Asian session on Wednesday. The precious metal remains under selling pressure amid elevated US Treasury yields as surging crude oil prices fueled inflation worries and bolstered expectations that the US Federal Reserve (Fed) would raise interest rates later on Wednesday.
The benchmark 10-year US Treasury yield note rose to its highest since 2007, reaching 5.041%. The yield later came off its high, last up more than 3 basis points (bps) to 5.00%. Higher Treasury yields raise the opportunity cost of holding non-yielding bullion, weighing on Gold price.
Additionally, oil prices moved higher after Saudi Arabia shuttered a key pipeline that bypasses the Strait of Hormuz. “Higher energy prices cause more inflation. More inflation could cause higher interest rates. That’s not good for gold ... gold is in kind of a range-bound area. It could actually sell off more if rates continue to move higher,” said Daniel Pavilonis, senior market strategist at StoneX.
Traders await the Fed interest rate decision on Wednesday. Financial markets expect that the US central bank will raise the benchmark overnight interest rate by 25 bps to the 3.75%-4.00% range and signal further tightening ahead.
Markets are now pricing in nearly 92.4% odds that the Fed will raise interest rates by a quarter of a percentage point at its September policy meeting on Wednesday, according to the CME FedWatch tool. Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.
US yields hover near 5% as Commerzbank warns on tighter conditions
Analysts at Commerzbank highlight that the recent move in longer-dated US rates saw the "US 10Y briefly rose above 5% before closing 2bp higher at 4.99%." The bank cautions that "sustained yields above this level would further tighten financial conditions," underscoring the risk that persistently elevated borrowing costs could exert additional pressure on the broader market environment.
Technical Analysis: Gold remains capped below the 100-day SMA
In the daily chart, XAU/USD holds below the 100-day simple moving average (SMA) and the Bollinger middle band, keeping the near-term tone bearish as price remains capped by these overhead trend and volatility references. The Relative Strength Index (14) at about 44 leans slightly to the downside, suggesting lingering downside pressure rather than an imminent bullish reversal.
On the topside, initial resistance appears at the 100-day SMA around $4,330, with the Bollinger middle band near $4,455 acting as a subsequent barrier, while the upper Bollinger band up by $4,685 defines a more distant cap if a stronger rebound develops. On the downside, the latest Bollinger lower band at approximately $4,225 offers the first notable support, and a clear break beneath this volatility floor would reinforce the prevailing bearish bias and open the door to deeper losses.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
