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Gold flirts with $$4,400 as softer US bond yields offset hawkish Fed and bullish USD

FXStreet · 2026-09-18T03:21:08Z
Gold flirts with $$4,400 as softer US bond yields offset hawkish Fed and bullish USD
  • Gold attracts some buyers for the second straight day, though it lacks bullish conviction.
  • Retreating US bond yields keep USD on the back foot and lend support to the commodity.
  • The hawkish Fed and Middle East woes favor USD bulls, capping the upside for the bullion.

Gold (XAU/USD) scales higher for the second straight day and continues to hit new weekly highs through the first half of the European session on Friday, with bulls now awaiting a move beyond the $4,400 mark before positioning for further gains. The recent pullback in crude oil prices eases immediate fears of runaway inflation, dragging US bond yields away from multi-year highs and driving flows towards the non-yielding yellow metal. However, the US Federal Reserve's (Fed) hawkish outlook helps revive US Dollar (USD) demand and might cap further gains for the bullion.

The US central bank voted unanimously to raise interest rates for the first time since 2023 at the end of the September meeting on Wednesday. Adding to this, the so-called dot plot revealed that Fed officials expect one more interest rate increase this year. At the post-meeting press conference, Fed Chair Kevin Warsh underscored the importance of stabilizing consumer prices to grow the US economy and said that inflation was too high for too long. Moreover, escalating tensions in the Middle East continue to support crude oil prices, fueling worries about energy-driven inflation and underpinning prospects for further Fed tightening.

UOB flags renewed Dollar upside as Fed hiking cycle widens US rate gap

Analysts at UOB Group highlight that the Federal Reserve’s return to a renewed hiking cycle is reshaping the Dollar outlook. They note that, “as we now expect two further Fed rate hikes, the narrowing of US rate differentials relative to G-10 peers – which have been weighing on the DXY since late 2024 – is likely to reverse and underpin the DXY going forward.” Against this backdrop, UOB now sees its previously cautious stance on the Dollar as increasingly challenged. “Putting this together, we now see upside risks to our USD forecasts against both G-10 and Asian currencies,” the bank says.

According to the CME Group's FedWatch tool, traders see a 54% chance of another Fed rate hike at the October meeting and the probability of a move in December stands at around 88%. This, along with geopolitical uncertainties, acts as a tailwind for the safe-haven USD, keeping a lid on the Gold price. In the latest development, Iran's Islamic Revolutionary Guard Corps (IRGC) said that it struck a Togo-flagged tanker that attempted an illegal passage through the Strait of Hormuz. Adding to this, US President Donald Trump said that he was approaching a major decision on whether to resume large-scale attacks on Iran. This, in turn, favors USD bulls.

Hence, it will be prudent to wait for strong follow-through buying before positioning for an extension of the precious metal's recovery from a six-week low, touched on Wednesday. Traders now look forward to Friday's second-tier US macro data – Industrial Production and Capacity Utilization Rate. Apart from this, speeches from influential FOMC members will drive the USD and provide some impetus to the Gold price later during the North American session. Traders will also take cues from further developments surrounding the Middle East crisis to grab short-term opportunities around the XAU/USD pair heading into the weekend.

XAU/USD daily chart

Chart Analysis XAU/USD

Technical Analysis

The XAU/USD pair fails near the 100-day Exponential Moving Average (EMA) at $4,368, which keeps the near-term bias tilted bearish despite staying above key Fibonacci support. The commodity hovers just above the 50.0% retracement at $4,320, which acts as a fragile floor after the recent pullback. Meanwhile, the Relative Strength Index (RSI) at 49.52 sits near neutrality, and the Moving Average Convergence Divergence (MACD) at -19.60 remains in negative territory, hinting that downside pressure still prevails.

This, in turn, suggests that the Gold price could face initial resistance at the 38.2% Fibonacci retracement at $4,408, followed by the 100-day EMA at $4,368, with stronger barriers emerging at the 23.6% retracement at $4,516 and the $4,692 swing high. On the downside, immediate support aligns at the 50.0% retracement at $4,320, ahead of deeper Fibonacci levels at $4,232 and $4,107, with the $3,947 zone marking a more distant structural floor should selling extend.

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

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.