Gold (XAU/USD) steadied at $4,280 on Friday after two sessions of declines, having earlier touched $4,254, as elevated US yields and inflation expectations continued to frame expectations for further tightening by the Federal Reserve. The US 10-year Treasury yield slipped by nearly 2 basis points to 5.192%, while core Durable Goods Orders rose above estimates in August and July was revised higher. Consumer sentiment weakened, with the University of Michigan index falling to 48.1 from 51.7, as one-year inflation expectations rose to 4.6% from 4% and five-to-ten-year expectations edged up to 3.4% from 3.3%. Prime Terminal placed the odds of an October rate rise at 64%, and the implied probability for December was nearly 93%.
Oil’s retreat helped ease pressure on the US dollar, with WTI down over 3% to $91.00 per barrel and the US Dollar Index (DXY) lower by 0.22% at 101.02. In technical terms, XAU/USD remained capped below the 100- and 50-day SMAs around $4,304–$4,312, with RSI still under 50. Support was flagged at $4,200–$4,210, then the August 3 low of $4,019 and the $4,000 level; resistance sat at $4,300, $4,350 and $4,400. Central bank demand was also referenced, with 2022 purchases of 1,136 tonnes valued at about $70bn.
Short-Term Bearish Outlook for Gold
We should prepare for near-term downward pressure on gold as it struggles to break past the $4,300 resistance level. With the 10-year Treasury yield holding high at 5.192% and market bets pricing in a 64% chance of a Federal Reserve rate hike in October, holding long positions carries significant risk. Derivative traders should look to establish short positions or buy put options on rallies toward the $4,300 to $4,312 resistance zone.
Our technical indicators show a clear bearish bias, with the Relative Strength Index staying firmly below the 50 neutral mark. If gold breaks below the wedge support around $4,200, we expect a rapid drop toward the August low of $4,019. Under similar macroeconomic backdrops in past decades, such as the high-rate environment of the early 1980s, gold experienced prolonged downward trends whenever real yields remained deeply positive.
The temporary relief from West Texas Intermediate crude falling to $91.00 has softened the US Dollar Index to 101.02, but this relief may be short-lived. Ongoing geopolitical tensions and the threatened closure of the Strait of Hormuz could easily spark a sudden rebound in energy prices, which would reignite inflation expectations currently sitting at 4.6% for the year. We must monitor oil derivatives closely, as any sudden spike in crude will likely push Treasury yields higher and drag gold down further.
Institutional Support for Long-Term Stability
Despite short-term bearishness, we must not ignore the strong long-term floor created by institutional buyers. World Gold Council data reveals that central banks bought a record 1,037 tonnes of gold in recent years, maintaining a historic pace of sovereign accumulation to diversify away from the US dollar. This massive buying power suggests that any drop toward the $4,000 psychological level will likely trigger aggressive support, making it an ideal area for us to take profits on short positions and hunt for long reversal plays.
