Gold steadied on Tuesday after sliding to a more-than-one-month low, with XAU/USD near $4,295 after touching $4,253 on Monday. Directional conviction remained limited ahead of Wednesday’s Federal Reserve decision and fresh economic projections, while firmer US Treasury yields and a stronger US Dollar kept the non-yielding metal under pressure. The 10-year yield tested 5% and the 30-year climbed to around 5.40%, both the highest since 2007; alongside that move, the US Dollar Index traded near 99.60 around two-week highs.
Higher energy prices linked to the Middle East war have added to inflation concerns and reinforced tighter policy expectations. Headline CPI was 3.4% year-on-year in August, while PPI rose to 5.4% from 4.8% in July, with markets widely expecting the first rate rise since 2023 at the end of the two-day meeting. Technically, gold stayed below the 100-day SMA at $4,328 and the 200-day SMA near $4,539, with the 50-day SMA around $4,275 a near-term support level; RSI sat near 43 and the MACD histogram remained negative. Resistance is also seen around $4,700, while further downside levels sit at $4,150 and $4,000.
Fed Policy Uncertainty and Trading Strategies
We advise derivative traders to remain highly cautious in the coming weeks as gold holds near $4,295 ahead of the Federal Reserve’s policy decision tomorrow. With the 10-year US Treasury yield hitting 5% and the Dollar Index strong at 99.60, the immediate upside for the precious metal is heavily capped. We recommend avoiding heavy directional exposure until the Fed reveals its updated economic projections and interest rate path.
Historically, gold faces intense pressure when real yields spike, and the current macro environment is no exception with August headline CPI sitting at 3.4% and PPI rising to 5.4%. If the Fed delivers a rate hike and signals a prolonged tightening cycle, we could see gold break its immediate supports. Derivative traders should look to buy short-term put options to hedge against this potential downside risk.
Technical Outlook and Market Participation
On the charts, we see a clear bearish bias as gold trades below its 100-day moving average of $4,328 and 200-day moving average of $4,539. A daily close below the 50-day moving average at $4,275 will likely accelerate losses toward $4,150 or even $4,000. We suggest using any short-term relief rallies toward $4,328 to establish short positions with tight stop-losses.
Recent exchange-traded fund data shows that global gold ETF holdings have remained relatively flat, indicating that retail investors are waiting on the sidelines. Meanwhile, government borrowing costs across major economies are rising to multi-year highs, which could eventually trigger safe-haven demand if confidence in sovereign debt wavers. However, until the technical momentum shifts, we believe the path of least resistance for gold remains to the downside.
