Gold Teeters Ahead of Fed Decision Amid Hawkish Rate Hike Expectations
Gold struggled to break free from bearish pressure as US Treasury bond yields climbed higher this week, ahead of the Federal Reserve's (Fed) critical policy meeting. The precious metal lost over 1% on Tuesday but managed to recover some losses on Wednesday.
The escalation of the conflict in the Middle East and rising crude oil prices fueled inflation fears, leading investors to bet on a Fed interest rate hike in September. This expectation weighed on Gold, causing it to drop further.
However, the Producer Price Index (PPI) rose by 5.4% on a yearly basis in August, above market expectations, and crude oil prices surged higher. The CME FedWatch Tool's probability of a 25 basis points increase in the interest rate in September advanced to 70%, further boosting the USD and dragging XAU/USD back below $4,400.
Analysts at Deutsche Bank highlight that the US economy is facing mounting speculation about a Fed rate hike next week. They note that Treasury yields surged higher, with the 2yr yield rising to its highest since July 2024 and the 10yr yield reaching its highest since October 2023.
The backdrop for bullion remains constructive, according to TD Securities, with the precious metal landscape still broadly supported by the renewed Dollar-debasement theme, elevated central bank buying, and renewed ETF accumulation. The bank argues that a hawkish Fed may only postpone the timing of the next leg higher rather than catalyze material downside.
The near-term technical outlook is yet to highlight a buildup in bearish pressure as the Relative Strength Index (RSI) indicator on the daily chart holds steady at around 50, and Gold sits above the 100-day Simple Moving Average (SMA) despite closing below that level on Thursday.