Gold Rebound Stalls as Hawkish Fed and Yields Cap Upside

Key Moments

Macro Backdrop Keeps Gold Recovery in Check

Gold (XAU/USD) is staging a mild rebound on Tuesday, trading slightly under $4,150 ahead of the European session. The move follows a test of the $4,100 area on Monday, which marked the weakest level since August 4. Despite the uptick, the broader fundamental picture remains negative for the metal, keeping prices close to recent lows.

A firmly hawkish outlook from the US Federal Reserve, together with elevated US bond yields and ongoing geopolitical tensions, is supporting the US Dollar near a two-month high. This firm USD tone is acting as a headwind for bullion and argues for caution before positioning for any sustained upside in gold.

Fed Policy Expectations and Inflation Concerns Support the Dollar

The US central bank implemented a 25 basis point rate increase earlier this month – its first such hike in more than three years – and emphasized its determination to combat persistent inflation. Several influential FOMC officials have since indicated that an additional rate hike could still be appropriate before the end of 2026.

According to CME Group’s FedWatch Tool, market participants are currently assigning a 70% probability to another rate increase in October. These expectations are being reinforced by concerns that higher energy prices, linked to the Middle East conflict, could intensify inflation pressures.

Cook Highlights AI and Geopolitics as Inflation Drivers

Fed’s Cook delivered a speech that tilted slightly more hawkish than usual, reflected in an FXS Speechtracker score of 7/10, just above the established baseline of 6.9/10. Cook pointed to ongoing inflation risks in the coming months from artificial intelligence and the Middle East conflict, and reiterated that future policy decisions will remain dependent on incoming inflation and labor data. The labor market was described as sufficiently robust to withstand higher interest rates.

Cook also noted that productivity gains from AI should generate modest disinflation over the next few years. However, the view that these benefits will not materialize quickly enough to counter broader inflation pressures this year underpins a near-term hawkish stance and keeps USD-supportive dynamics in focus.

The FXS Fed Sentiment Index edged down by 0.63 points to 146.89, signaling a slight moderation in perceived hawkishness despite the above-baseline Speechtracker reading. With the index remaining well above the neutral level of 100, the Fed is still seen firmly in hawkish territory, suggesting that either additional tightening or a prolonged higher-for-longer rate environment continues to favor US Dollar strength, even as market pricing cools marginally at the edges.

Geopolitics, Oil, and Yields Add Pressure on Gold

Geopolitical developments are adding another layer of support for the USD and US yields. In the latest development, US President Donald Trump rejected a peace proposal from Iran aimed at resolving their military conflict and reopening the Strait of Hormuz immediately upon meeting Tehran’s terms. Trump also denied a report from Axios that he had offered Iran sanctions relief and access to frozen funds in exchange for specific steps on its nuclear program.

This backdrop keeps geopolitical risk premia elevated and continues to underpin crude oil prices, feeding inflation concerns and pushing US bond yields to multi-year highs. The yield on the 30-year US government bond has surged to its highest level since mid-May 2004. The benchmark 10-year Treasury yield has reached its strongest reading since mid-June 2007, while the 2-year, which is more sensitive to policy expectations, has climbed to its highest level since May 2024.

These yield dynamics are providing ongoing support to USD bulls and, in turn, are constraining gold. Against this backdrop, it appears prudent to wait for clear, robust buying interest before concluding that XAU/USD has established a durable bottom.

Key US Data Releases in Focus

Market participants are likely to remain cautious as they await several major US macroeconomic releases later this week, which could significantly influence the outlook for both the USD and gold.

• The US Personal Consumption Expenditures (PCE) Price Index – the Fed’s preferred inflation measure – is scheduled for release on Wednesday, alongside the final Q2 GDP print.
• On Thursday, attention will turn to the US ISM Manufacturing PMI.
• On Friday, the closely watched US Nonfarm Payrolls (NFP) report will take center stage.

In addition, comments from key FOMC members will be monitored for fresh signals on the Fed’s policy trajectory. Together, these inputs are expected to drive demand for the USD and provide further direction for gold prices.

Technical Picture: Bias Stays Bearish Despite Bounce

From a technical standpoint, XAU/USD retains a negative short-term structure after breaking below the 200-day Exponential Moving Average (EMA) at $4,310 and slipping through key Fibonacci retracement levels. The pair has fallen back beneath the 61.8% retracement at $4,227, leaving it trading in the lower half of its recent range.

The Moving Average Convergence Divergence (MACD) indicator is printing a negative reading of 26.21, while the Relative Strength Index (RSI) sits at 36.40, just above oversold territory. This configuration suggests prevailing downside pressure, but also leaves room for occasional corrective rebounds.

Key Levels for XAU/USD

Nearby resistance and support levels are clustered around key Fibonacci and moving average thresholds:

On the upside, any further recovery is expected to encounter initial resistance near the 61.8% retracement at $4,227, followed by a significant barrier formed by the 200-day EMA at $4,310 and the 50% retracement at $4,316. Above these, additional obstacles are seen at $4,406 and $4,517, with the recent cycle high around $4,696 capping the broader range.

On the downside, immediate support is located at the 78.6% retracement level around $4,099, with a more substantial base at the previous swing low near $3,937. A clear break below $3,937 would strengthen the existing bearish narrative, while a sustained move back above $4,227 would be needed to start easing selling pressure.