Gold Under Pressure from the Dollar and U.S. Yields—Do Fed Data Point to a New Uptrend?

Gold prices fell during Tuesday’s trading, affected by the continued strength of the U.S. dollar and rising Treasury yields, as markets continue to assess the implications of the U.S. labor market slowdown on the Federal Reserve’s monetary policy path.

While diminished expectations for near-term interest rate hikes have limited the precious metal’s losses, monetary pressures and high inflation continue to pose a challenge to its upward momentum.

Gold Prices Fall Amid a Strong Dollar and Rising Yields

Gold prices fell today, Tuesday, to near the $4,104 level before rising and settling above $4,120 per ounce, while U.S. gold futures settled near $4,156 per ounce.

The inverse relationship between gold on the one hand and the dollar and U.S. yields on the other is one of the most significant factors influencing the precious metal’s movement at this time.

U.S. Jobs Data Reduces Bets on Interest Rate Hikes

Despite the pressures on gold, recent U.S. labor market data helped limit losses.

September’s nonfarm payrolls data showed a slower-than-expected pace of job creation, along with a downward revision to previous months’ figures, prompting investors to scale back bets on an interest rate hike at the upcoming Federal Reserve meeting.

Nevertheless, markets still expect, with a high probability of about 87%, that interest rates will be raised at the December meeting; however, the probability of a rate hike in October has now fallen to 24%, down from nearly 70% last week before the jobs and inflation reports.

Austin Goolsbee, president of the Federal Reserve Bank of Chicago, said that labor market data point to a degree of stability, but inflation remains the biggest challenge for monetary policymakers, which keeps uncertainty high regarding the path of interest rates in the coming months.

U.S. Inflation Continues to Raise Concerns

U.S. services sector data showed a slowdown in economic activity in September, but strong domestic demand continued to put pressure on supply chains, driving input prices to their highest levels in more than four years.

These developments suggest that inflationary pressures may persist longer than expected, which could prompt the Federal Reserve to maintain a hawkish monetary policy for an extended period—a factor that weighs on gold prices in the short term.

Geopolitical Tensions Provide Support for Gold

Conversely, geopolitical risks continue to provide significant support for the precious metal as one of the leading safe-haven assets.

Markets are monitoring developments in the Middle East, particularly following the announcement by the Saudi-backed Yemeni government that it has made progress on the ground in areas surrounding the Bab el-Mandeb Strait, one of the world’s most important maritime channels.

Analysts believe that any further escalation in the region could redirect safe-haven flows toward gold, which might limit the pressure caused by a strong dollar and high yields.

Central Banks and Asian Demand Support the Long-Term Trend

Despite current pressures, long-term fundamentals continue to favor gold.

The South Korean central bank announced its intention to begin purchasing gold from domestic producers starting in December, a move that reflects central banks’ continued trend toward diversifying reserves and reducing reliance on foreign currencies.

Physical demand in Asian markets has also seen a notable improvement as prices have fallen, with demand in India rising in anticipation of the holiday season, while gold trading in China continued to trade at positive premiums, reflecting strong consumer and investment demand.

Meanwhile, gold holdings in London vaults rose to approximately 9,534 metric tons, valued at over $1.2 trillion, confirming investors’ continued interest in the precious metal despite market volatility.

Financial Institutions’ Gold Price Forecasts

HSBC lowered its forecast for the average gold price in 2026 to $4,490 per ounce from a previous estimate of $4,560, citing the impact of rising interest rates and energy prices.

The bank also lowered its forecast for 2027 to $4,825 per ounce.

In contrast, Goldman Sachs maintained its positive long-term outlook, forecasting that gold will reach $5,400 per ounce by the end of 2027, based on continued central bank purchases and rising global demand for safe-haven assets.

Gold Price Forecasts for the Coming Period

Gold prices remain caught between a range of conflicting factors. On the one hand, the precious metal faces pressure from a strong dollar, rising U.S. bond yields, and the likelihood of continued tight monetary policy; on the other hand, it is benefiting from a slowdown in the U.S. labor market, sustained Asian demand, central bank purchases, and global geopolitical risks.

In the near term, markets will closely monitor upcoming U.S. inflation data and statements from Federal Reserve officials, as these factors will play a pivotal role in determining the direction of gold.

In the long term, the fundamentals supporting the precious metal remain intact, keeping the outlook positive despite the current downward corrections and volatility.