XAU/USD Holds Above $4,112 Amid Persistent Chinese Gold Buying and Elevated Treasury Yields

Quick overview

• Spot gold hovers near $4,144, with a potential decline to $4,112 if it breaks below near-term moving averages.
• China has extended its gold reserves accumulation streak to 23 consecutive months, reaching 77.47 million troy ounces as part of a broader diversification strategy.
• Odds for an October FOMC rate hike have fallen to 19–21%, while the U.S. 10-year Treasury yield remains elevated at around 5.30%, pressuring gold’s appeal.
• Despite elevated yields, structural central bank demand remains robust, underpinned by geopolitical uncertainty and gold’s safe-haven status.

Spot gold is trading near $4,144, and a sustained move below the near-term moving averages would put $4,112 squarely in focus. China has extended its gold buying streak to 23 consecutive months. Meanwhile, odds for an October FOMC hike have tumbled to 19–21%. However, the U.S. 10-year Treasury yield has settled at around 5.30%, reinforcing the opportunity cost of holding non-yielding bullion.

Given the technicals and fundamentals, my bias is skewed to the downside. However, given the strength of China’s gold buying as well as other central bank buying and geopolitical uncertainties, I am structurally bullish on gold.

China Extends Gold Buying to 23 Straight Months

An increase in Chinese gold reserves represents one of the more bullish structural developments for gold. The People’s Bank of China increased its gold reserves for the 23rd consecutive month in September, rising to 77.47 million troy ounces from 76.73 million troy ounces in August.

It is worth noting that China’s gold purchasing over the past 23 months has occurred amid significant gold market volatility. This buying has not been tactical. Instead, it reflects China’s broader strategy to bolster gold reserves and diversify foreign assets, reducing reliance on U.S. Treasuries and traditional sovereign debt.

October Fed Hike Risk Has Fallen Sharply

Recent U.S. employment and inflation reports have improved the monetary policy outlook since the latter part of September. Market odds for another FOMC hike in October have dropped to 19% to 21%, down from approximately 50% a week earlier.

While this was gold-bullish because the immediate risk of Fed rate hikes diminished, the outlook for a more restrictive policy in October remains intact. A majority of 85% still expects a hike in December, and until the outlook changes, the Fed is still viewed as not done with policy tightening.

Fed Minutes Could Reset Expectations Again

In the absence of new macro data or FOMC officials’ speeches, expectations have centered on the minutes from the September 15–16 FOMC meeting, due for release later Wednesday.

The minutes could offer insight into the degree of support for the latest rate increase and how many members see policy tightening extending beyond December 2026. The minutes could also provide more color on the Fed’s outlook and make traders less patient.

Treasury Yields Remain Gold’s Biggest Headwind

The most important macro issue remains the bond market. The 10-year U.S. Treasury yield has moved up to around 5.3%, and longer-term yields have recently reached their highest levels in roughly 24 years. Market concerns about inflation have only increased amid high energy prices and extraordinarily high levels of government borrowing and spending.

For gold, this means yields are looking more attractive than the zero income that bullion provides. While the immediate expectation of a Fed rate hike in October has lessened, gold has still struggled to post a meaningful bounce.

Structural Demand Is Holding Up Despite High Yields

What is notable is that, despite tighter financial conditions, gold-related activity with central banks and the official sector remains strong. At the LBMA conference this week, several central bank speakers emphasized gold’s role as a diversifier of riskier assets and a reserve asset during periods of geopolitical stress and high debt-related credit risk.

This explanation helps to illustrate why, during this cycle, gold has shown less correlation to changes in real interest rates compared to previous cycles. While short-term traders may be selling gold, longer-term central bank traders are buying gold, which provides a floor to the market.

Geopolitical Risk Adds Another Layer of Support

Middle East uncertainty remains another source of demand. U.S.-Iran tensions continue, while escalating Houthi attacks on Saudi Arabia have raised concerns about energy infrastructure and supply.

For gold, this remains a two-sided catalyst. On the one hand, geopolitical uncertainty increases demand for safe havens. On the other hand, higher oil prices increase inflation expectations and strengthen the case for more Fed rate hikes. Thus, the current situation in the gold market fits a trade pattern in which inflows occur without a clear breakout higher.

Gold Technical Analysis: $4,112 Is the Key Support

On the 1-hour chart of Gold, price has dropped below the short-term moving averages after failing to take out the descending trend line again. Gold is in a longer-term downtrend with lower highs and lower lows, and the shorter-term structure is the same, as price continues to make lower highs and is trading below the 4,161–4,179 range.

Looking at the hourly chart, the first support to watch is at 4,112. If price drops below that level, supports come in at 4,070 and 4,021. If price recovers, the first resistance is at 4,154–4,161 and if price continues to rise, important resistance comes in at 4,179 and 4,227.

RSI is around 44, with the signal line closer to 53, suggesting that the previous upwards momentum has slowed again. While I am leaning more towards the bear case as long as gold is under 4161–4179 and the descending trendline, a move above 4179 would help the case for a countertrend rally. A move below 4112 would suggest 4070 is next in line.

Resistance: 4154, 4161, 4179, 4227

Support: 4112, 4070, 4021

Frequently Asked Questions

Why is China still buying gold?

China has continued adding gold as part of a broader reserve-diversification strategy. September marked the 23rd straight month of reported PBoC buying, with reserves rising to 77.47 million fine troy ounces.

What is the biggest catalyst for gold today?

The Federal Reserve meeting minutes are the key event because they could reshape expectations for additional tightening in October or December.

What is the key XAU/USD support?

The 200-hour EMA or 4112 is the key support for the moment. A clean break below it opens the door for 4070 and 4021.

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