Gold struggles to reclaim $4,200 as Fed interest rate hike risks persist, US CPI looms

Gold consolidates gains as a pullback in the US Dollar and Treasury yields offers support.
The metal struggles to extend its recovery as Fed interest rate hike expectations remain a headwind.
Traders await Wednesday’s US CPI report for fresh clues on the interest rate outlook.

Gold (XAU/USD) extends its sideways price action heading into American trading hours on Tuesday. A pullback in US Treasury yields drags the US Dollar (USD) away from recent highs, helping the metal hold its ground. At the time of writing, XAU/USD trades around $4,183, up 0.28% on the day.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 102.25 after reaching 102.61 on Monday, its highest since April 2025.

Meanwhile, Treasury yields are declining across the curve as short covering and demand for government bonds pick up after a sell-off in AI-related stocks. The benchmark 10-year yield slips below 5.20%, retreating from last week’s peak of 5.36%, its highest since 2002.

However, Gold lacks strong upward momentum and remains capped below the $4,200 mark as the broader fundamental backdrop keeps buyers cautious. Further declines in the US Dollar and Treasury yields could remain limited as energy-driven inflation risks linked to Middle East tensions reinforce expectations that the Federal Reserve (Fed) may need to keep interest rates higher for longer.

Cleveland Fed President Beth Hammack said on Monday that she prefers smaller interest-rate adjustments but wants the Fed to act “relatively quickly.” Hammack added that trend inflation is in the “mid-to-high 2% range” and expects it will take time to return to the central bank’s 2% target despite appropriate monetary policy.

Energy prices remain volatile at elevated levels, with no sign of a breakthrough in diplomatic efforts to reach a US-Iran agreement on reopening the Strait of Hormuz. Escalating fighting between Saudi Arabia and Yemen’s Houthis adds to concerns over regional security and energy supplies.

Geopolitical tensions and inflation risks would normally support Gold. However, elevated borrowing costs encourage investors to favour interest-bearing assets. Traders now look ahead to the US Consumer Price Index (CPI) report, due on Wednesday, for fresh clues on the interest-rate path.

Analysts at MUFG/BTMU highlight that “the recent run of softer US data (PCE deflator report for August and NFP report for September) alongside cautious comments over the need for another back-to-back hike from the Fed’s leadership have dampened expectations for another rate hike as soon as this month.” They note that “market expectations for the Fed to stay on hold this month will be tested by the release on Wednesday of the latest US CPI report for September,” which is seen as the key near-term catalyst for rate pricing.

MUFG/BTMU add that “unless there is a significant upside surprise for underlying inflation, we expect the Fed to leave rates on hold this month,” while stressing that “it is likely to be only a temporary pause as the Fed currently plans to hike rates again before the end of this year in December.”

Technical analysis: XAU/USD consolidates below key moving averages

On the daily chart, XAU/USD maintains a pattern of lower highs and lower lows since peaking near $4,700 in late August and subsequently slipping back below its key Simple Moving Averages (SMAs). The broader structure remains bearish, although selling pressure shows signs of easing.

The Relative Strength Index (RSI) near 45 hints at subdued downside pressure, whereas the Moving Average Convergence Divergence (MACD) is turning slightly positive, though the overhead moving averages remain barriers to a stronger recovery.

On the topside, initial resistance lies at the 100-day SMA near $4,252, followed by the 50-day SMA around $4,339. A stronger barrier stands at $4,450, ahead of the 200-day SMA near $4,527.

On the downside, initial support emerges at $4,100. A break below this level could expose the $4,000-$3,950 zone, while holding above this floor would allow Gold to consolidate within the current bearish framework.