Gold gains as US Dollar and yields pause, but weekly loss remains in sight

• Gold rebounds modestly from a one-week low as the US Dollar and Treasury yields ease.
• Hawkish Fed expectations remain a key headwind, with markets pricing a stronger chance of an October rate hike.
• Focus shifts to next week’s PCE inflation, ISM Manufacturing PMI and Nonfarm Payrolls data.

Gold (XAU/USD) edges higher on Friday as the US Dollar (USD) and Treasury yields take a breather following their strong rally this week. At the time of writing, XAU/USD trades around $4,310 after slipping to a one-week low of $4,244 on Thursday. Still, the broader fundamental and technical backdrop remains bearish, leaving the precious metal on track for a weekly loss.

Growing expectations that the Federal Reserve (Fed) may raise interest rates again remain a key headwind for Gold. The central bank delivered a 25-basis-point (bps) rate hike last week, lifting the federal funds rate to 3.75%-4.00%, while its updated projections showed that 16 of 18 policymakers expect at least one more increase this year.

Bets on another rate increase as early as next month gained traction throughout the week after strong US Purchasing Managers’ Index (PMI) data and hawkish comments from Fed officials. New York Fed President John Williams said, “We need to get inflation back to target in a timely manner,” adding that it is “reasonable to see another rate hike by end of the year.” Richmond Fed President Tom Barkin said inflation pressures are spreading beyond energy and tariff-related shocks.

The CME FedWatch Tool now shows around a 71% probability of a hike at the October meeting. The repricing has driven a sharp rise in the US Dollar and Treasury yields across the curve. A stronger US Dollar makes Gold more expensive for foreign buyers, while higher yields increase the opportunity cost of holding the non-yielding metal.

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101 after reaching 101.40 on Thursday, its highest level in nearly two months. Meanwhile, the benchmark 10-year US Treasury yield holds near 5.17%, below Thursday’s peak of 5.22%, its highest level since 2007.

Meanwhile, higher Oil prices caused by the war in the Middle East are adding to inflation pressures, complicating the Fed’s efforts to bring inflation down to the 2% target. Iran has offered to reopen the Strait of Hormuz within seven days if Washington eases military pressure and lifts its blockade. US and Iranian officials are also discussing a phased deal, but the two sides remain far apart and have not reached a breakthrough, Reuters reported.

On the data front, traders await the final University of Michigan Consumer Sentiment Index for September later on Friday. The US economic calendar becomes much heavier next week. Personal Consumption Expenditures (PCE) inflation data is due on Wednesday, followed by the ISM Manufacturing PMI on Thursday and the Nonfarm Payrolls (NFP) report on Friday. These releases could play a major role in shaping expectations for the Fed’s October meeting.

Technical Analysis: XAU/USD hovers above the Bollinger middle band

On the 4-hour chart, XAU/USD maintains a constructive near-term tone as it holds above the 20-period Simple Moving Average (SMA) at $4,299 from the Bollinger Bands and the lower band support near $4,237. The pair is pushing into the upper half of the recent volatility envelope, while the Relative Strength Index (RSI) around 51 hints at neutral-to-firm momentum and the Moving Average Convergence Divergence (MACD) turning slightly positive reinforces a mild bullish bias.

On the topside, immediate resistance is seen at the horizontal barrier around $4,330, followed by the Bollinger upper band near $4,362. A sustained break above this area could expose the next resistance zone between $4,450 and $4,500. On the downside, initial support is provided by the Bollinger middle band at $4,299, followed by the lower band near $4,237. A deeper pullback could bring the $4,150-$4,200 support zone into focus.

(The technical analysis of this story was written with the help of an AI tool. Know more.)