Gold holds steady below $4,200 as retreating bond yields and softer USD lend support

• Gold bulls remain on the sidelines amid bets for at least one Fed rate hike by the end of this year.
• Retreating US bond yields drag the USD away from a two-month high, supporting the commodity.
• Traders now look to the US PCE data for some impetus ahead of the key US NFP report on Friday.

Gold (XAU/USD) struggles to capitalize on the previous day's positive move and oscillates in a range during the Asian session on Wednesday, stalling its recovery from the $4,100 neighborhood or the lowest since August 5, touched earlier this week. The downside, however, remains cushioned as retreating US bond yields drag the US Dollar (USD) further away from a two-month high and should act as a tailwind for the non-yielding bullion. Traders might also opt to wait for important US macro data before placing fresh directional bets on the commodity.

The US Personal Consumption Expenditures (PCE) Price Index – the Federal Reserve's (Fed) preferred inflation gauge – will be published later today, along with the final Q2 GDP print. Traders this week will also confront the release of the US ISM Manufacturing PMI on Thursday and the popularly known US Nonfarm Payrolls (NFP) report on Friday. Apart from this, speeches from influential FOMC members will be looked upon for more cues about the US central bank's future policy path, which will drive the USD and provide fresh impetus to the Gold.

Dollar support persists as US data and yields keep Fed expectations elevated

Strategists at OCBC argue that the near-term focus for markets remains squarely on US labour data, with “this week's US labour market report” flagged as “the key event risk.” They note that Bloomberg consensus “expects nonfarm payrolls to rise by 90,000 in September, down from 162,000 in August, while the unemployment rate is forecast to remain unchanged at 4.1%.” While acknowledging Fed Chair Kevin Warsh’s emphasis on “the four-week average of initial jobless claims as a timely indicator of labour market conditions,” OCBC strategists stress that “payrolls remain the market's preferred measure of labor market health.”

Against this backdrop, OCBC strategists reiterate that “our base case remains for a moderate USD rally into year-end.” They point out that “markets are currently pricing almost four Fed rate hikes over the next year, which appears overly aggressive unless demand-driven inflation re-emerges as the dominant force behind price pressures,” adding that “wage growth and rental inflation will be critical indicators to watch.”

In the meantime, US Treasury yields pulled back from multiyear highs amid the overnight decline in crude oil prices to a three-week low and dovish comments from New York Fed President John Williams, who said the US central bank need not rush its next move. Furthermore, the Conference Board reported on Tuesday that the US Consumer Confidence Index missed estimates and dropped to 81.9 in September, marking its lowest reading since 2014. This, in turn, prompted some follow-through USD profit-taking and could act as a tailwind for gold.

Nevertheless, CME Group's FedWatch Tool indicates that traders are still pricing in over a 90% chance that the Fed will raise borrowing costs again by the end of this year. Furthermore, persistent geopolitical uncertainties stemming from the US-Iran standoff might continue to underpin the safe-haven Greenback, warranting some caution before placing aggressive bullish bets on the XAU/USD pair. In fact, hopes for a diplomatic solution to end the US-Iran conflict faded after US President Donald Trump turned down a seven-day ceasefire proposal from Iran.

Adding to this, Qatari efforts to broker a US-Iran breakthrough have made little progress this week. In further developments, US officials believe that Trump could order a return to major combat after the midterm elections. This keeps the risk of renewed escalation of tensions in the Middle East firmly on the table, backing the case for the emergence of some USD dip-buyers. Hence, it will be prudent to wait for strong follow-through buying before confirming that the Gold price has formed a bottom around $4,100 and positioning for any meaningful appreciation.

XAU/USD daily chart

Technical Analysis

The XAU/USD pair finds some support ahead of the $4,100 mark, representing the 78.6% Fibonacci retracement level of the June-August rise. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator remains negative, hinting at persistent downside pressure, while the Relative Strength Index (RSI) around 40 suggests weak momentum rather than oversold conditions.

Hence, the 61.8% retracement at $4,227 forms an initial cap ahead of the 200-day exponential moving average (EMA) at $4,307 and the mid-range Fibo. retracement near $4,317. As long as the XAU/USD pair stays under the 200-day EMA, rallies are likely to be limited. Further up, the 38.2% retracement at $4,406 and the 23.6% level at $4,517 reinforce a broader ceiling.

On the downside, immediate support emerges at the 78.6% Fibo. retracement near $4,100, ahead of the prior swing base at $3,937. A decisive break below this would open the path toward a deeper pullback toward the $3,937 area.

(The technical analysis of this story was written with the help of an AI tool. Know more.)