Gold drops to four-week low, below $4,300 as USD firms amid Fed hike bets and Iran risks

• Gold attracts some follow-through selling as oil-driven inflation risks reaffirm Fed hike bets.
• Escalating US-Iran tensions benefit the safe-haven USD, further weighing on the commodity.
• The market focus remains glued firmly on the release of the crucial US NFP report on Friday.

Gold (XAU/USD) drops to a nearly four-week low during the Asian session on Wednesday and is now looking to extend the fall further below $4,300 amid a bearish fundamental backdrop. The escalating Middle East conflict lifts crude oil prices to a fresh high since July 24, stoking inflation fears and reaffirming US Federal Reserve (Fed) rate hike bets. Apart from this, some follow-through US Dollar (USD) buying continues to exert downward pressure on the bullion.

Tensions between the US and Iran reignited following a US strike on Iranian rocket launchers near Larak Island in the Strait of Hormuz on Sunday. This was the first US strike since late July, prompting an Iranian counterattack on US-linked targets in the region. Adding to this, the Central Command (CENTCOM) said on Tuesday that US forces struck Islamic Revolutionary Guard Corps (IRGC) targets. In response, Iran escalated the confrontation and launched heavy ballistic missile and drone attacks on American interests in Bahrain, Kuwait and Jordan on Wednesday. This keeps the geopolitical risk premium in play, supporting crude oil prices and the safe-haven Greenback.

Meanwhile, investors remain worried that elevated energy prices will rekindle inflationary pressures and force major central banks, including the US Fed, to adopt a more hawkish stance. Adding to this, Fed Chair Kevin Warsh's comments at the Jackson Hole Symposium on Friday continue to fuel expectations of a rate hike in September. Furthermore, concerns about fiscal debt led to a deepening global bond market sell-off, pushing the yield on the benchmark 10-year US Treasury to its highest level since January 2025. This is seen as another factor that continues to drive flows away from the non-yielding Gold and backs the case for a further near-term depreciating move.

US 10-year yields seen grinding toward 5%

Societe Generale’s rates strategists warn that the latest sell-off leaves the US curve vulnerable to further upside in long-end yields, noting that “at this pace, US 10s are on track for 5%.” They frame the move as part of an ongoing bear steepening, with investors increasingly testing how much additional term premium the market will demand as policy expectations remain skewed toward further Fed tightening.

Traders, however, might opt to wait for the release of the closely watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. The crucial labor market data will be looked at for more cues about the Fed's future policy outlook, which, in turn, will influence the USD price dynamics and provide a fresh impetus to the precious metal. In the meantime, the aforementioned fundamental backdrop seems tilted in favor of bearish traders and suggests that the path of least resistance for the Gold price remains to the downside. Hence, any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out quickly.

XAU/USD daily chart

Technical Analysis

An intraday break below the 50% retracement level of the recent recovery from the year-to-date low, touched in July, could be seen as a key trigger for XAU/USD bears. Moreover, the Moving Average Convergence Divergence (MACD) is deeply negative and below the zero line, while the Relative Strength Index (RSI) hovers near 44, hinting at fading bullish momentum. However, some follow-through selling below the 200-day Exponential Moving Average (EMA) at around $4,276 is needed to back the case for further losses.

The said support is followed by the 61.8% Fibonacci retracement at around $4,236, which, if broken, would expose the 78.6% retracement near $4,111 and the prior swing low region around $3,952. On the topside, initial resistance emerges at the 50.0% retracement near $4,324, ahead of a tighter hurdle at the 38.2% retracement around $4,412, with a stronger barrier further up at the 23.6% level near $4,521.

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