Gold (XAU) Price Forecast: Bearish Sentiment as Treasury Yields and Dollar Weigh on Gold

Gold Prices Decline as Hopes for Aggressive Rate Cuts Fade

Gold prices edged lower on Thursday as recent U.S. economic data dampened expectations for a significant Federal Reserve rate cut in November. The metal remains near its all-time high of $2685.64 but is under pressure, with minor support at $2616.25. While traders expect a technical bounce at this level, a sustained move below it could lead to a deeper decline toward $2578.24.

At 10:05 GMT, XAU/USD is trading $2645.36, down $13.40 or -0.50%.

Strong U.S. Private Payroll Data Lowers Rate Cut Odds

Gold’s decline was driven by stronger-than-expected U.S. private payroll data for September, which showed the economy added 143,000 jobs, beating forecasts of 128,000. This report reinforced the view that the labor market remains resilient, reducing the likelihood of an aggressive rate cut. Market odds of a 50-basis-point cut in November have dropped from 49% to 34%, according to the CME FedWatch Tool.

Richmond Fed President Thomas Barkin further dampened expectations by stating that returning inflation to the central bank’s 2% target may take longer, potentially limiting how far rates can be cut. This shift in outlook hurt demand for non-yielding assets like gold, which typically benefits from a low-rate environment.

Geopolitical Tensions Offer Limited Support

Gold has seen some safe-haven demand due to escalating geopolitical tensions in the Middle East. Israel bombed Beirut in response to attacks by Iran-backed Hezbollah, following Iran’s missile strike on Israel. However, this geopolitical risk has not been enough to offset the downward pressure from shifting Fed rate expectations.

MarketPulse analyst Zain Vawda highlighted that while the Iranian attack initially boosted safe-haven buying, the tempered rate cut expectations have kept gold’s upside limited.

Rising Treasury Yields and Strong U.S. Dollar Weigh on Gold

Adding to gold’s pressure, U.S. Treasury yields rose on Thursday, with the 10-year yield climbing to 3.8056% and the 2-year yield reaching 3.6539%. Higher yields reduce gold’s appeal as an investment since bullion offers no interest. Furthermore, the U.S. dollar strengthened to a one-month high against the yen, reflecting optimism about the U.S. economy. A stronger dollar typically makes gold more expensive for foreign buyers, further weighing on prices.

The U.S. dollar index rose to 101.916, extending gains as traders reassessed rate cut odds after strong payroll data. The robust dollar, combined with rising Treasury yields, continues to act as a headwind for gold prices.

Market Forecast: Bearish Short-Term Outlook

In the short term, gold prices are likely to remain under pressure as the market focuses on the upcoming U.S. non-farm payroll report. A stronger-than-expected reading could drive prices below $2616.25, with a possible test of support at $2578.24.

However, if the data shows signs of labor market weakness or higher unemployment, gold could attract fresh buying interest, pushing prices toward $2700. For now, the bearish outlook prevails, with the strong U.S. dollar and Treasury yields limiting gold’s upside potential.