Gold falls as rising US Treasury yields strengthen the US Dollar
- Gold snaps a two-day winning streak as rising US Treasury yields and a firmer US Dollar weigh on the precious metal.
- Fading expectations of a September Fed rate hike provide some support and keep Gold within its recent range.
- Technically, XAU/USD retains a constructive bias above the key moving averages on the 4-hour chart.
Gold (XAU/USD) attracts sellers on Tuesday, snapping a two-day winning streak as a firmer US Dollar (USD) and rising long-term US Treasury yields weigh on the precious metal. At the time of writing, XAU/USD trades around $4,393, down 0.50% on the day.
The benchmark 10-year US Treasury yield has climbed toward 4.75%, while the 30-year yield has risen above 5.30%, its highest level since 2007. The rise in yields is part of a broader global bond sell-off driven by inflation and fiscal concerns, with long-term borrowing costs in the United Kingdom, Germany and Japan also climbing to multi-decade highs. Higher yields increase the opportunity cost of holding non-yielding assets such as Gold.
Strategists at Brown Brothers Harriman highlight that the latest leg higher in crude is feeding through to rates and broader risk sentiment, noting that “the renewed upswing in crude Oil price is pushing bond yields higher and worsening already fragile fiscal dynamics.” However, BBH cautions that “the risk of further dovish Fed repricing will keep USD rebounds shallow and short-lived,” suggesting that any Dollar strength is likely to remain constrained.
The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 99.65 after rebounding from 99.30 on Monday, its weakest level since June 5.
Energy-driven inflation concerns stay at the forefront as the standoff between the United States (US) and Iran over the Strait of Hormuz drags on. US President Donald Trump said Washington is not seeking an extension of the memorandum of understanding with Iran, which expired on Monday.
Higher Oil prices keep alive the odds around a Federal Reserve’s (Fed) interest-rate hike. However, recent weak US employment and consumer spending data, along with softer inflation readings, have reduced expectations of an imminent increase. Markets currently see around a 65% probability that the Fed will leave interest rates unchanged next month, according to the CME FedWatch Tool.
For Gold, the near-term outlook points to consolidation. Fading expectations of a September Fed rate hike provide some support, but the firmer US Dollar and rising Treasury yields limit its upside.
With a relatively light US economic calendar this week, traders will focus on the release of the Federal Open Market Committee (FOMC) Meeting Minutes on Wednesday, as well as developments in the Middle East.
Technical analysis: Neutral momentum keeps XAU/USD below $4,450
On the 4-hour chart, XAU/USD retains a constructive bias while holding above the 50-period Simple Moving Average (SMA) at $4,365. The pair also stays comfortably above the 100- and 200-period SMAs.
However, price action remains range-bound between $4,300 and $4,450. The Relative Strength Index (RSI) at 52 sits close to neutral. The Moving Average Convergence Divergence (MACD) remains slightly below the zero line, suggesting that bullish momentum has softened. Meanwhile, the Average Directional Index (ADX) at 30 indicates moderate trend strength.
On the upside, a break above the upper boundary of the range at $4,450 could expose the $4,500 psychological mark. A sustained move above this level would open the door to a fresh bullish leg.
On the downside, the 50-period SMA at $4,365 offers immediate support, followed by the lower end of the range at $4,300. A decisive break below this area would expose the 100-period SMA at $4,225 and the 200-period SMA at $4,151.
(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.
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