Gold Recovers from Two-Month Low as Treasury Yields Retreat
Gold (XAU/USD) rebounded on Tuesday, recovering from a two-month low of $4,104 during Asian trading hours. The rally was driven by a pullback in US Treasury yields, which eased to around 5.27% after reaching a high of 5.349% on Monday. The US Dollar Index (DXY) also retreated, moving toward 101.80 after hitting a fresh year-to-date high of 102.53 the previous day. At the time of writing, XAU/USD traded around $4,151, up 0.29% on the day, after reaching an intraday high of $4,179.
The pullback in yields and the US Dollar provided gold with some breathing room, but the metal remains largely confined between $4,100 and $4,200. Elevated yields increase the opportunity cost of holding non-yielding gold, keeping demand for the US Dollar firm. Sticky inflation and a resilient US growth outlook reinforce expectations that interest rates will stay high for longer, while fiscal and government debt concerns add further upward pressure on borrowing costs.
Data released on Tuesday showed that ADP’s four-week average of weekly private-sector job gains rose to 23.75K from 22.5K. However, softer-than-expected US Nonfarm Payrolls (NFP) and Personal Consumption Expenditures (PCE) inflation data released last week have reduced pressure on the Federal Reserve (Fed) to raise interest rates at its October 27-28 meeting. The CME FedWatch Tool shows a 78% chance of a hold. A pause in October offers near-term support for gold, but a broader recovery may remain difficult as markets anticipate further tightening.
The stalemate between the United States and Iran keeps energy-driven inflation risks elevated, with oil prices remaining above pre-war levels. However, recovering Gulf exports and emergency reserve releases are weighing on oil prices, with West Texas Intermediate (WTI) trading around $87, near one-month lows. A stronger recovery in gold would likely require a meaningful shift toward a less restrictive Fed outlook, accompanied by a sustained decline in Treasury yields and the US Dollar.