Gold bears tighten their grip as Fed rate hike bets rise

Gold slides to a one-week low as a stronger US Dollar and rising US Treasury yields weigh on the metal.
Strong US business activity data and hawkish Fed signals strengthen expectations of another interest-rate increase.
XAU/USD slips below the 50-day and 100-day SMAs, keeping the near-term technical bias bearish.

Gold (XAU/USD) slides to a one-week low on Thursday as rising US Treasury yields and a stronger US Dollar (USD) reflect an increasingly hawkish Federal Reserve (Fed) outlook. At the time of writing, XAU/USD trades around $4,266, down nearly 0.48% on the day.

The yield on the benchmark 10-year US Treasury note jumped 15.2 basis points (bps) on Wednesday, moving above 5% to its highest level since 2007. Short-term yields also hover near multi-year highs, although a modest pullback on Thursday limits a deeper decline in Gold.

A strong batch of US S&P Global Purchasing Managers’ Index (PMI) data drove the move. The Composite PMI unexpectedly rose to a five-year high of 58.4 in September, pointing to resilient economic growth and giving the Fed more room to tackle stubborn inflation. US labour-market data released on Thursday also supported the hawkish outlook. Initial Jobless Claims rose to 197K in the week ending September 19 from 196K previously, but came in below market expectations of 201K.

The strong figures strengthened expectations that the US central bank could raise interest rates again in October after delivering a 25 bps hike last week. The CME FedWatch Tool places the probability of a rate increase at around 75%, up from 55% a day earlier. Higher borrowing costs weigh on Gold by increasing the attractiveness of interest-bearing assets.

The shift also keeps the US Dollar in strong demand. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.29, its highest level in two months. A stronger US Dollar makes Gold more expensive for overseas buyers.

Recent remarks from Fed officials have kept the door open to additional rate hikes, with policymakers stressing the need to bring inflation back to the 2% target. New York Fed President John Williams said, “We need to get inflation back to target in a timely manner,” adding that it is “reasonable to see another rate hike by end of the year.”

Meanwhile, elevated Oil prices linked to the war in the Middle East keep inflation risks tilted to the upside, reinforcing expectations of tighter monetary policy across major economies.

The United States and Iran held talks on the sidelines of the United Nations General Assembly earlier this week, but the two sides are still far apart on how to end the war. Reuters reported, citing a senior Iranian official, that Tehran is reviewing Washington’s response to its peace proposals, which prioritise lifting the US naval blockade on Iranian ports and reopening the Strait of Hormuz.

Looking ahead, traders await more Fed commentary and the meeting between US President Donald Trump and Chinese President Xi Jinping later on Thursday.

Technical Analysis: Sellers remain in control below key daily SMAs

XAU/USD remains bearish in the near term as it slips below key Simple Moving Averages (SMAs). Spot gold is capped below the 50-day SMA at $4,311 and the 100-day SMA at $4,308, forming a nearby resistance cluster that hints at downside risk. Momentum indicators reinforce this softer tone, with the Relative Strength Index (RSI) on the daily chart hovering near a neutral 42 and the Moving Average Convergence Divergence (MACD) indicator in negative territory, suggesting sellers still control the short-term swings.

On the downside, initial support is seen at the horizontal level near $4,150, where a break would expose the next bearish target around $4,000. On the topside, bulls would need to reclaim the clustered 50- and 100-day SMAs around $4,310 to ease immediate pressure, with further resistance then located at the 200-day SMA at $4,541 and the more distant structural barrier at $4,700. Until these overhead levels are overcome, rallies are likely to struggle and risk fading back towards the underlying support band.