Gold Falls as Yields & Dollar Strengthen Ahead of FOMC Minutes

Gold is falling, giving back yesterday’s gains as the U.S. dollar strengthens and attention turns to the FOMC minutes later today.

The precious metal trades 0.6% lower at the time of writing at $4,135, having failed to hold onto yesterday’s bounce and after hitting a two-month low. The path of least resistance remains to the downside.

Gold Struggles Despite October Fed Rate Hike Expectations Fading

On the one hand, receding bets on an October Federal Reserve rate hike have offered some support. However, still-elevated Treasury yields, volatile oil prices and uncertainty over the inflation outlook continue to weigh on the precious metal.

U.S. economic data last week showed cooler-than-expected core PCE inflation and a softening labour market. This, combined with less hawkish commentary from Federal Reserve officials such as New York Fed President John Williams, has seen markets lower expectations for an October rate hike to just 20%, from 70% 10 days ago.

Meanwhile, oil prices briefly fell to a four-week low yesterday, down 15% from their mid-September high, as resilient Middle Eastern crude exports and a G7 emergency stockpile release helped ease supply concerns. However, with Vice President JD Vance insisting that Iran must cut uranium enrichment to end the war, something Iran has refused to do, there is still no clear end in sight.

As a result, oil prices could remain volatile, while elevated energy prices could keep inflationary pressures high, particularly with diesel now around $6 a gallon.

Treasury Yields Remain a Key Headwind

U.S. Treasury yields pulled back slightly yesterday, giving gold some room to recover, but yields remain elevated at multi-decade highs.

Gold is a non-yielding asset and pays no coupon. With the 10-year Treasury yield around 5.3%, its highest level since 2002, elevated yields are dampening demand for the precious metal while also keeping the U.S. dollar elevated around 17-month highs.

FOMC Minutes in Focus

The FOMC minutes will be released later today and could provide more colour on the outlook for interest rates. Two things will be key for gold.

First, how broad was the support for the October rate hike? This could provide an indication of how likely a December hike is. A divided Fed would raise the bar for further monetary tightening and could be supportive for gold.

Second, the minutes could reveal the extent to which policymakers believe elevated Treasury yields are already doing some of the Fed's tightening for it by restricting financial conditions.

If policymakers indicate that yields around 5.3% are sufficiently restrictive, this could weaken the case for another rate hike and provide a bullish catalyst for gold.

Next week's U.S. CPI data is likely to be the next major catalyst. Cooler-than-expected CPI could reinforce the dovish repricing of the Fed and help gold recover. However, a hotter-than-expected reading, particularly if oil prices rebound, could push yields higher and expose gold to further selling pressure.

For Gold to make a significant recovery, oil prices and yields would need to fall significantly, neither of which is looking likely near term.

XAU/USD Chart Analysis

After running into resistance at 4,700, gold has trended lower, maintaining a bearish picture after breaking below its 50 and 200 EMAs before finding support around 4,100.

With the RSI below 50, sellers retain the upper hand and will look for a break below 4,100 to open the door towards 4,090, the 2026 low, before attention turns to 3,900. A sustained break below 4,100 would reinforce the bearish structure and increase downside momentum.

Should the 4,100 support hold, buyers will look to reclaim 4,200 before attention turns to 4,300, where the 50 and 200 EMAs converge. A sustained move above this area would put gold on a more stable footing and shift attention towards 4,500.