Gold Slips as Fed Rate-Hike Expectations Fuel Dollar and Yield Rally

Gold (XAU/USD) edged lower by about 1.69% on Friday and was on track to close out a third straight weekly decline. At the time of writing, XAU/USD was trading near $4,147, pressured by broad US Dollar strength after the Federal Reserve signaled that interest rates could remain higher for longer.

Dollar Strength and Rising Yields Weigh on XAU/USD

A risk-on market mood is also weighing on non-yielding metals as investors favor US Treasuries, which offer returns, and the US Dollar. The US Dollar Index (DXY) has climbed to 13-month highs above the 101.00 mark.

The US-Iran deal has helped improve trader sentiment, although the outlook remains fragile. Israel and Hezbollah exchanged strikes before reports emerged that both sides favor a ceasefire in line with the agreement reached by Washington and Tehran. The Washington Post also reported that US intelligence warned the Trump administration that Israeli leader Benjamin Netanyahu could take steps to undermine the deal amid political pressure.

The reopening of the Strait of Hormuz has eased concerns over oil supply disruptions, helping reduce inflationary pressures. Even so, several major central banks have moved to contain inflation, with the European Central Bank (ECB) raising rates by 25 basis points on June 11, followed by the Bank of Japan (BoJ) on Tuesday.

The Federal Reserve could be next. At its most recent meeting, policymakers suggested that nearly half of the Federal Open Market Committee members expect at least one rate hike in 2026.

US Treasury yields have risen sharply, with the 2-year Treasury note, which is highly sensitive to rate expectations, climbing 13 basis points after the Fed meeting. The move pushed gold toward six-day lows near $4,121.

Prime Terminal data showed that money markets are pricing in 18 basis points of Fed tightening at the September 16 meeting, implying a 72% probability of a rate hike.

Goldman Sachs has cut its gold price forecast to $4,900 per troy ounce by December, lowering its previous estimate by $500.

Investors are now focused on next week’s US economic calendar, particularly the final estimate for Q1 2026 GDP and the Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge.

XAU/USD Technical Outlook: Gold Risks Further Losses Below 200-Day SMA

Gold remains bearish after falling below the 200-day Simple Moving Average (SMA) at $4,466. Price action continues to show lower highs and lower lows, while a decisive break below $4,100 could open the door to a retest of the year-to-date low of $4,023, set on June 11.

Momentum remains negative, with the Relative Strength Index (RSI) pointing lower and still having room to fall before entering oversold territory.

If XAU/USD drops below $4,100, the $4,000 level could come into focus. A break beneath that mark may pave the way for a move toward the October 28, 2025 swing low of $3,886.

On the upside, gold needs to reclaim the June 17 cycle high of $4,382. If buyers regain control above that level, attention would shift back to the 200-day SMA. A move beyond that area could bring $4,500 into view.

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