Gold prices steadied on Tuesday after sliding to a seven-week low, as traders increasingly priced in another Federal Reserve rate hike in October. Spot gold hovered near $4,130 an ounce, recovering slightly from Monday's sharp selloff that saw futures drop more than 3%.
The shift in rate expectations has been rapid. Markets now assign a 72.5% probability to a Fed increase next month, up from 57.6% just a week earlier. This repricing has pushed US Treasury yields higher, with the 10-year note touching 5.27% and the two-year yield approaching 5%. For a non-yielding asset like gold, higher yields raise the opportunity cost of holding bullion, especially as the dollar strengthens.
Fed Governor Lisa Cook added to the hawkish tone on Monday, noting that AI-related investment and elevated oil prices are likely to keep inflation pressures elevated in the coming months. She stopped short of specifying how many additional rate moves might be needed, but her comments reinforced market expectations.
Analysts at Saxo Bank suggested that part of Monday's selloff reflected Chinese investors taking profits ahead of the Golden Week holiday, adding a positioning element to the macro-driven decline.
$4,100 Support in Focus
Gold is now approaching a technically significant area. James Stanley, senior market strategist at Forex.com, identified the $4,100 level as a potentially important support zone, noting that the longer-term bullish case could remain intact while gold holds above $4,000. A sustained break below $4,100 would bring $4,000 back into view, while a recovery would need to overcome the damage from the recent slide from above $4,300.
Technical analysis from Kitco also points to roughly $4,100 as the first meaningful support area. Tuesday's stabilization is important but not decisive, with the next direction likely to depend more on US economic data than on geopolitical developments.
Key Data Ahead
This week brings a heavy data calendar, including job openings, ADP employment figures, the PCE inflation gauge, and Friday's nonfarm payrolls report. A softer run of data would be the clearest near-term route to lower yields and reduced Fed hike expectations, removing one of gold's biggest headwinds.
The longer-term demand picture remains supportive. World Gold Council data show global gold-backed ETFs attracted $18 billion in August, the second-largest monthly inflow on record, while holdings rose by 121 tonnes to a record 4,189 tonnes.
Oil prices and Middle East diplomacy are other swing factors. A durable US-Iran de-escalation could lower energy prices and inflation expectations, potentially easing pressure on yields. Continued disruption would preserve gold's safe-haven appeal but could also keep the Fed hawkish.
This article is for informational purposes only and does not constitute financial advice.
