Are global rate hike risks keeping gold on the back foot near $4,150?

• Gold loses 0.43%, finding no support from lower US Treasury yields.
• Markets assign a 14% probability to an October Fed rate hike, with higher odds for December.
• XAU’s recovery outlook faces pressure from BoE and BoJ tightening signals.

Gold (XAU/USD) remains under pressure on Tuesday, unable to benefit from sharply lower US Treasury yields and a softer US Dollar. With next week’s Federal Reserve (Fed) meeting in focus, investors have largely looked past a sparse US economic calendar. XAU/USD is trading at $4,122 at the time of writing, a decline of over 0.43%.

Why is XAU/USD falling despite a weaker Dollar and lower yields as central banks signal more tightening?

Further consolidation appears likely for bullion as investors weigh last week’s comments from Fed officials that there is no urgency to raise rates in October. Money markets consequently put the probability of an October Fed hike at 14%, compared with close to 90% for December, according to Prime Terminal.

Few US economic releases are scheduled this week. Meanwhile, Fed officials have entered their blackout period, which runs until Fed Chair Kevin Warsh's press conference on 28 October.

US housing figures are instead drawing investors’ attention, highlighting the impact of elevated US bond yields. High mortgage rates were the principal reason for September’s 7.3% plunge 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. Further insight into US business sentiment will come from S&P Global Flash PMIs, alongside the final October reading of the University of Michigan Consumer Sentiment Index.

Are major central banks set to raise rates further?

Gold, which generally performs well when interest rates are low, faces a headwind as officials at major central banks indicate that further monetary tightening lies ahead.

While acknowledging that core inflation is “quite close” to the 2% target, Bank of Japan (BoJ) Governor Kazuo Ueda also suggested further rate increases. Meanwhile, the Bank of England’s (BoE) Megan Greene warned that the risks of second-round inflation effects are greater than previously thought, saying the current policy stance “is not restrictive enough.”

XAU/USD technical analysis: Can Gold defend $4,100 as pressure persists below $4,200?

Trading within the $4,100 to $4,200 range, Gold is heading for a third consecutive daily decline despite signs of a bottom forming near the range’s lower boundary. Speculation about a possible Fed rate increase in December continues to create uncertainty and weigh on bullion.

The Relative Strength Index (RSI) has levelled off somewhat but remains bearish, suggesting that momentum still favours further declines.

A break below $4,100 is needed for sellers to extend the downtrend. That would bring the 14 October low of $4,073 into focus, followed by the 29 July cycle low of $3,996. If the decline deepens, the next levels to watch are the 17 July low of $3,959 and 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. Further up, the 50-day SMA stands at $4,321, followed by the $4,500 level.