Gold struggles for traction near $4,150 amid risks of global rate hikes

• Lower US Treasury yields fail to support Gold as it loses 0.43%.
• Markets price a 14% chance of an October Fed rate rise, with higher odds for December.
• Further tightening signals from the BoE and BoJ hamper XAU’s recovery outlook.

At $4,122 at the time of writing, Gold (XAU/USD) is down over 0.43% on Tuesday, despite a sharp fall in US Treasury yields and a softer US Dollar. With next week’s Federal Reserve (Fed) meeting approaching, investors have largely looked past the sparse US economic calendar.

XAU/USD retreats as central bank tightening signals outweigh softer Dollar and yields

A further period of consolidation looks likely for bullion as investors digest last week’s comments from Fed officials, who indicated they were in no hurry to raise rates in October. Money markets consequently put the probability of an October Fed rate rise at 14%, compared with nearly 90% for December, according to Prime Terminal.

Few US economic releases are scheduled this week, while Fed officials have entered their blackout period. That period will conclude with Fed Chair Kevin Warsh’s press conference on 28 October.

Against this backdrop, investors have turned to US housing figures for evidence of the impact of higher US bond yields. Elevated mortgage rates were the principal reason for September’s 7.3% slump in US Pending Home Sales. Later this week, attention turns to Initial Jobless Claims for the week ending on Thursday, with forecasts pointing to an increase from 199K to 200K. Business sentiment will also come into focus through the S&P Global Flash PMIs, alongside the final October reading of the University of Michigan Consumer Sentiment Index.

Major central banks signal further rate rises

Signals of additional monetary tightening from officials at major central banks are also weighing on Gold. The metal typically performs well when interest rates are low.

While acknowledging that core inflation was “quite close” to the 2% target, Bank of Japan (BoJ) Governor Kazuo Ueda indicated that further rate rises could follow. At the Bank of England (BoE), Megan Greene said the risk of second-round inflation effects was greater than previously thought and described the current policy stance as one that “is not restrictive enough.”

XAU/USD technical analysis: Gold remains under pressure below $4,200 as $4,100 comes into focus

Trading within a $4,100 to $4,200 range, Gold is extending its decline into a third consecutive day, although signs of a bottom have emerged near the range’s lower boundary. Speculation over a possible Fed rate rise in December nevertheless leaves uncertainty hanging over bullion prices.

The Relative Strength Index (RSI) has levelled off somewhat but remains bearish, leaving momentum tilted towards further losses.

A sustained bearish move requires sellers to break below $4,100. Beyond that threshold, the 14 October low of $4,073 comes into view, followed by the 29 July cycle low of $3,996. Further declines would draw attention to the 17 July low at $3,959 and then the year-to-date (YTD) low of $3,941.

A bullish reversal would first face resistance at $4,200, before the 100-day Simple Moving Average (SMA) at $4,235. The next barrier is the 50-day SMA at $4,321, followed by the $4,500 level.