Gold Falls Nearly 3% as Fed Rate Hike Bets and Rising Treasury Yields Weigh
Gold prices fell sharply at the start of the new week, approaching $4,100 for the first time in eight weeks. Growing expectations of a Federal Reserve rate hike in October, combined with oil-driven inflation risks, have kept U.S. Treasury yields elevated near multi-year highs and supported the U.S. Dollar. The pressure on bullion intensified after U.S. President Donald Trump rejected Iran's ceasefire proposal.
Gold Technical Analysis: XAU/USD Faces Further Downside Risk
The XAU/USD pair confirmed a fresh break below the 61.8% Fibonacci retracement of the June-August advance after repeatedly failing to break above the 100-period Exponential Moving Average (EMA).
Technical indicators continue to point to persistent bearish momentum. The Moving Average Convergence Divergence (MACD) remains in negative territory with a declining profile, while the Relative Strength Index (RSI) has slipped toward 38, signaling that selling pressure remains elevated.
On the downside, the next major support level is located at the 78.6% Fibonacci retracement near $4,099. A break below this level could expose the previous swing low around $3,939, which represents a more significant structural support zone where selling pressure could potentially ease.
On the upside, initial resistance is seen at the 61.8% Fibonacci retracement near $4,226, followed by the 50% retracement at $4,314 and the 100-period EMA around $4,352. Further resistance levels are located near $4,403 and $4,513.
Fed Rate Hike Expectations Support the U.S. Dollar
The Federal Reserve raised its benchmark interest rate in mid-September 2026, marking its first rate hike in three years, and signaled that another increase could be implemented before the end of the year.
Several Fed officials have continued to support the possibility of further monetary tightening amid inflation risks stemming from higher energy prices. According to the CME Group FedWatch Tool, traders are currently pricing in around a 68% probability of a Federal Reserve rate hike in October.
Higher interest rates and Treasury yields can weigh on gold because the non-yielding precious metal becomes less attractive relative to interest-bearing assets. At the same time, expectations of tighter monetary policy have helped underpin the U.S. Dollar, creating additional headwinds for XAU/USD.
USD Strengthens as Hawkish Fed Stance Keeps Risk in Focus
OCBC strategists noted that resilient U.S. economic data, elevated energy prices, and persistent inflation concerns continue to push Treasury yields higher. According to the bank, the environment supports the U.S. Dollar while weighing on interest-rate-sensitive assets and carry-trade positions.
OCBC also pointed to the Fed's recent hawkish rhetoric, citing comments from New York Fed President John Williams and Cleveland Fed President Beth Hammack, who warned that inflation risks remain elevated. Philadelphia Fed President Paulson also indicated that moderate additional policy tightening could still be necessary if inflation fails to ease.
The bank noted that market pricing reflects roughly a 70% probability of another 25-basis-point rate hike in October, highlighting growing expectations that the Fed's fight against inflation is not yet over.
Geopolitical Tensions Add Support to the Greenback
Geopolitical uncertainty has provided another boost to the U.S. Dollar, adding further pressure to gold prices.
In the latest development surrounding the Middle East crisis, President Donald Trump rejected Iran's proposal to immediately reopen the Strait of Hormuz under certain conditions while calling for an end to the fighting. Trump later warned on Sunday that additional military strikes against Iran could still occur before the U.S. midterm elections.
Meanwhile, Houthi forces have continued attacks involving Saudi Arabia, while Yemeni government forces have intensified air and ground operations against the Iran-backed group.
The developments have raised concerns over a broader regional conflict and prompted traders to reassess geopolitical risk premiums. The resulting support for oil prices could further reinforce inflation concerns, while demand for the U.S. Dollar as a safe-haven asset could increase selling pressure on gold.
PCE Inflation and NFP Data in Focus
Traders will now focus on speeches from FOMC officials, incoming geopolitical developments, and key U.S. economic data that could influence the U.S. Dollar and the XAU/USD pair.
The economic calendar includes the U.S. Personal Consumption Expenditures (PCE) Price Index and final Q2 GDP data on Wednesday, followed by the closely watched Nonfarm Payrolls (NFP) report on Friday.
The data could provide fresh clues about inflation, economic growth, and labor market conditions, potentially influencing expectations for the Federal Reserve's next policy moves and determining the near-term direction of gold prices.