Gold slipped around 1% at the start of the new week, extending a third straight weekly decline as oil-driven dollar strength and rising bond yields weigh on the metal. Wednesday's Federal Reserve decision could push gold toward $4,100 or $4,000, while only a break back above $4,400 would revive the bullish case.
Gold fell around 1% by mid-morning London trade at the start of the new week, adding to a 1.8% decline last week that marked the metal's third consecutive weekly loss. The momentum from August's surge is fading, and gold could return toward the $4,100 and possibly $4,000 area if the macro backdrop doesn't improve quickly.
The metal's post-CPI recovery didn't hold. Prices faded into Friday's close, though gold still finished that session 0.7% higher; those gains have since evaporated. Oil's rebound is pushing the dollar higher along with rate hike expectations and bond yields, a combination that weighs on non-interest-bearing assets like gold.
Fed decision could set the tone
The Federal Reserve's policy decision, due later this week, could provide the next major catalyst. Ahead of the FOMC meeting, the current trend suggests scope for further moderate losses, particularly after the latest inflation data. Kevin Warsh has warned inflation could stay above target for too long.
Yet the bigger question for markets isn't whether rates rise but what follows. A one-off adjustment would carry different implications for gold than the start of a renewed tightening cycle, given the metal's sensitivity to real yields and monetary policy expectations.
Oil and Treasury yields add pressure
Oil prices have surged in recent days despite easing slightly on Friday, gapping higher over the weekend as the broader trend for crude stays higher. If inflation continues to prove stubborn, it becomes harder for the Fed to rule out further tightening.
The 10-year Treasury yield came close to 5% last week, a psychologically important level that triggered some profit-taking, though the underlying direction remains higher as investors adjust rate expectations upward. Higher real yields raise the opportunity cost of holding gold, particularly if the dollar stays supported and equities come under pressure.
Key levels to watch
Resistance around $4,400 has held despite several tests in recent days, and gold's break below short-term support at $4,324 today is another sign of weakness. A move back toward $4,100 wouldn't be particularly surprising, potentially around Wednesday's Fed decision, with a clear break below that level bringing $4,000 and then the June low near $3,942 into view.
A break above $4,400 could shift the picture. Should the dollar-debasement trade regain traction, attention would turn to the $4,500 area, then the 200-day moving average near $4,538 and resistance near $4,600.
Source: Investing.com
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