Gold (XAU/USD) nursed modest intraday losses into Europe but stayed above $4,100 after touching a two-month low earlier on Tuesday. A firmer US Dollar has weighed on demand, though fading expectations of an October Federal Reserve rate rise have helped to curb declines. Markets are still pricing in over an 85% chance of another hike by year-end, while rate expectations over the next 12 months imply 86bps of tightening, down from 100bps early last week but up from 70bps after the payrolls release. Oil hovering near a four-week low, helped by resilient Middle East exports and a G7 emergency stockpile release, has also eased pressure on the Fed.
Geopolitical risks and elevated US bond yields kept the dollar near its highest level since April 2025, extending headwinds for bullion, with attention also on developments involving the Houthis, Saudi Arabia, Israel and Iran. Focus turns to FOMC Minutes on Wednesday and remarks from FOMC members. Technically, MACD remains below zero and RSI is near 38; a break below $4,098 (78.6% Fibonacci) would expose $3,936, while resistance sits at $4,226, $4,254, $4,316, then $4,406, $4,517 and $4,696.
Persistent US Dollar Strength and Macro-Driven Downside Risks
We suggest derivative traders prepare for continued downward pressure on Gold (XAU/USD) as it hovers just above the critical $4,100 support level. The relentless strength of the US Dollar, driven by treasury yields remaining near multi-year highs, continues to cap any significant rallies. While a pause in immediate interest rate hikes offers a temporary cushion, the broader macro trend heavily favors the bears.
Historically, gold struggles when real yields rise, and with the US 10-year Treasury yield holding strong above the 4% mark, the opportunity cost of holding non-yielding bullion remains high. We point out that during similar periods of aggressive monetary policy tightening, such as the cycle in late 2022, gold fell over 12% before finding a solid structural floor. Current market pricing still reflects an 85% chance of another Federal Reserve rate hike before the year ends, which keeps the pressure firmly on precious metals.
Geopolitical Risks, Technical Levels, and Trading Strategy
Geopolitical tensions in the Middle East, including active regional drone strikes and potential escalations, usually trigger safe-haven flows into gold. However, we are seeing these geopolitical risk premiums quickly absorbed by a surging US Dollar instead. This dynamic means that any sudden spikes in gold prices will likely be short-lived, serving as better selling opportunities for tactical traders rather than the start of a new bull run.
We advise keeping a close eye on the immediate support level at $4,098, which aligns with the 78.6% Fibonacci retracement. A clean daily close below this floor could trigger a rapid acceleration downward toward the next major structural target near $3,936. On the flip side, we would look to establish short positions near the initial resistance zone of $4,226 to $4,254 if a temporary relief rally occurs in the coming weeks.
The release of the upcoming FOMC meeting minutes on Wednesday will be the critical catalyst to watch for trading direction. We expect increased volatility around this release, meaning derivative traders should tighten their risk management parameters on all gold contracts. Speeches from central bank officials this week will also help clarify whether the market is underestimating the likelihood of higher-for-longer interest rates.
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