Gold stalls below $4,150 as rising US yields offset Fed relief

Gold slips below $4,150 as US yields hit 5.34%.
October Fed hold odds reach 77%, but December hike odds stay elevated.
Dollar strength and upbeat sentiment erode bullion’s safe-haven appeal.

Gold (XAU/USD) prices drift lower on Monday as a strong US Dollar and high US Treasury yields undermine the precious metal, which has failed to rally as investors expect a less hawkish Federal Reserve (Fed) and have priced out a rate hike this month. At the time of writing, XAU/USD trades at $4,132, down 0.27%.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Bullion struggles as Dollar strength and rising yields overwhelm dovish repricing

Market mood is upbeat, hurting bullion’s safe-haven appeal, which is also weighed down by the rise of the US 10-year Treasury note yield, which is up six basis points at 5.341%. Consequently, the US Dollar Index (DXY), which measures the buck’s performance against six currencies, is up 0.25% at 102.17.

US services sector activity declined marginally as the ISM Services PMI in September decreased from 55.4 to 54.9, slightly below the expected 55. Input costs kept climbing, surpassing forecasts, with prices paid rising from 72.6 to 74, higher than the predicted 73.3. Meanwhile, new orders slowed, but the employment component grew.

Last week, the Federal Reserve’s (Fed) favorite inflation gauge, the Core PCE, was mostly unchanged from the previous print, which triggered a reaction by investors, who trimmed Fed hawkish bets, boosting Gold prices.

Money markets price in a nearly 77% chance that the Fed will stand pat at the October meeting, but the odds of a rate hike in December are at 88%, according to Prime Terminal data.

Fed interest rate probability - Source: Prime Terminal

Friday’s September Nonfarm Payrollscame in lower than expected and sent XAU/USD to a weekly peak of $4,227 before sellers stepped in and sent spot prices below the $4,150 psychological figure.

The jump in US Treasury yields undermines Gold's non-yielding status, even though it can also serve as a hedge against inflation.

Tensions in the Middle East escalate as Yemeni forces clashed with Houthis over Bab al-Mandab. Yemeni forces, with air support, announced they captured Al-Makah after exchanging fire with Houthi militias.

Investors brace for the ADP Employment Change 4-week average data ahead of the September Federal Open Market Committee (FOMC) meeting minutes on Wednesday, which will lay the path for the future of interest rates in the US.

XAU/USD technical analysis: Gold price pressured on the downside, as RSI stays bearish

Price action shows Gold is poised to consolidate further below $4,150, with eyes set on challenging the first support at $4,100. Momentum suggests further downside is expected, as the Relative Strength Index (RSI) is trending lower, nearing oversold conditions.

If XAU/USD falls beneath $4,100, it paves the way for a move to the $4,000 figure, slightly above the July 29 swing low of $3,996. Once those two levels are taken out, the year-to-date (YTD) low of $3,941 would be next.

For a bullish reversal, bullion buyers must push prices above $4,200 and clear the 100- and 50-day Simple Moving Averages (SMAs), at $4,274 and $4,327, respectively. Once hurdled, up next is $4,500.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

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