Gold Rebounds as Softer Yields Offset U.S. Dollar Gains

Key Moments

Gold Supported by Softer Yields but Constrained by Fed Outlook

Gold (XAU/USD) saw additional buying interest for a second straight session, pushing the metal to a fresh weekly high early in the European trading day on Friday. The move coincided with a further pullback in U.S. bond yields from multi-year peaks, as the recent decline in crude oil prices eased immediate concerns about rapidly accelerating inflation. This moderation in yields limited upside in the U.S. Dollar (USD), creating a more favorable backdrop for the non-yielding metal.

However, the advance in gold remained tentative. The U.S. Federal Reserve’s (Fed) firm policy stance continued to lend underlying support to the Greenback, tempering bullish momentum in bullion. Market participants remained cautious about the durability of the current rebound in XAU/USD.

Fed Rate Path and Inflation Concerns Support Dollar Tone

The U.S. central bank unanimously approved its first interest rate increase since 2023 at the conclusion of its September meeting on Wednesday. In addition, the updated dot plot signaled that Fed officials anticipate one more rate hike this year. During the post-meeting press conference, Fed Chair Kevin Warsh stressed the priority of stabilizing consumer prices as a prerequisite for U.S. economic growth and stated that inflation had remained elevated for an extended period.

At the same time, sustained tensions in the Middle East continued to underpin crude oil prices, amplifying concerns about energy-driven inflation pressures and reinforcing expectations that the Fed could maintain or extend its tightening campaign. This backdrop helped preserve a constructive bias toward the USD and limited the upside for gold.

UOB Sees Renewed Dollar Upside as Fed Tightening Resumes

Analysts at UOB Group highlighted that the Fed’s return to a renewed hiking cycle is reshaping the outlook for the U.S. Dollar. They noted that, “as we now expect two further Fed rate hikes, the narrowing of US rate differentials relative to G-10 peers – which have been weighing on the DXY since late 2024 – is likely to reverse and underpin the DXY going forward.”

In light of this, UOB indicated that its previously cautious view on the Dollar is coming under strain. “Putting this together, we now see upside risks to our USD forecasts against both G-10 and Asian currencies,” the bank said.

Rate Expectations and Geopolitics Reinforce Safe-Haven Dollar

Market-derived Fed expectations also continued to lean hawkish. According to the CME Group’s FedWatch tool, traders assigned a 54% probability to another rate hike at the October meeting, with the likelihood of a move in December around 88%. These expectations, combined with ongoing geopolitical risks, supported demand for the safe-haven USD and constrained further gains in gold prices.

In the latest geopolitical development, Iran’s Islamic Revolutionary Guard Corps (IRGC) stated that it struck a Togo-flagged tanker attempting an illegal passage through the Strait of Hormuz. Additionally, U.S. President Donald Trump said that he was nearing a major decision on whether to resume large-scale attacks on Iran. These developments bolstered USD sentiment and added another headwind for bullion.

Data, Fed Speakers, and Geopolitics in Focus for Gold Traders

Given the cross-currents of lower yields, a firmer Fed stance, and heightened geopolitical risks, market participants were cautious about aggressively extending the latest gold rally. Analysts judged it prudent to wait for more decisive follow-through buying before positioning for a more sustained recovery from the six-week low registered on Wednesday.

Attention now turns to Friday’s second-tier U.S. macro releases – Industrial Production and Capacity Utilization Rate. Commentary from influential Federal Open Market Committee (FOMC) members later in the North American session is also expected to influence USD dynamics and, by extension, gold pricing. Short-term trading in XAU/USD is likely to remain sensitive to further headlines related to the Middle East backdrop heading into the weekend.

Technical Picture: Key Levels for XAU/USD

On the daily chart, XAU/USD has been unable to break decisively above the 100-day Exponential Moving Average (EMA) at $4,368. This failure keeps the short-term technical bias tilted to the downside, despite prices holding above an important Fibonacci retracement area.

The metal is currently hovering just above the 50.0% Fibonacci retracement at $4,320, which is acting as a fragile support floor after the latest pullback. Momentum indicators provide a mixed but slightly negative signal: the Relative Strength Index (RSI) at 49.52 is close to neutral territory, while the Moving Average Convergence Divergence (MACD) at -19.60 remains below the zero line, suggesting that bearish pressure has not fully abated.

From a technical perspective, the current configuration suggests that gold may encounter its first noteworthy barrier at the 38.2% Fibonacci retracement at $4,408, followed by the 100-day EMA at $4,368. Above these, more substantial resistance is seen at the 23.6% retracement at $4,516 and the swing high at $4,692.

On the downside, immediate support remains at the 50.0% retracement at $4,320. If selling pressure intensifies, subsequent levels of interest reside near $4,232 and $4,107, with the $3,947 region representing a more distant but important structural support area.