21.10.202613:15 Forex Analysis & Reviews: Gold: Can Prices Remain Resilient Amid Market Pressures?

Gold resisted market headwinds for a long time, making enormous efforts to hold its ground amid a stronger US dollar and rising Treasury yields. However, as soon as these headwinds subsided, the precious metal unexpectedly began to decline. Has it run out of momentum?

Treasury yields continue to retreat from their recent peaks amid risk aversion driven by concerns over a potential artificial intelligence bubble and signs of a slowdown in the US economy. Pending home sales have fallen to a record low, while housing starts declined in September to one of their lowest levels since the pandemic. The Federal Reserve's monetary tightening is putting pressure on the housing market. If these conditions persist, the economy could eventually slide into recession.

Gold Prices and Treasury Yields

Nevertheless, gold, which declines when bond yields rally, is not rising as yields fall. The precious metal appears to be looking beyond short-term market movements. Markets and Reuters' experts expect the Fed to pause its monetary tightening cycle in October before resuming it in December. Meanwhile, approximately 41% of respondents forecast two additional rate hikes in 2027, taking the rate to 4.75%. In the September survey, only 20% held this view.

The main argument in favor of a more prolonged monetary tightening cycle is high oil prices. According to Kpler, oil shipments from the Middle East have exceeded pre-war levels as flows bypassing the Strait of Hormuz have increased from 17% to 40%. Under normal circumstances, Brent crude prices would be expected to decline. However, concerns about an escalation of the conflict, the rapid depletion of the buffer provided by global inventories, and rising demand for crude oil in the United States and China are preventing the North Sea benchmark from falling. Bulls are ignoring statements from mediators regarding a proposal to resume negotiations between Washington and Beijing.

The oil rally increases the risk that elevated energy prices will feed into core inflation and force the Federal Reserve to tighten monetary policy more aggressively. In that scenario, Treasury yields would resume their upward trend, while gold, which generates no interest income, would struggle to compete. This outlook is forcing hedge funds and asset managers to reduce their bullish positions in the precious metal. According to TD Securities, short positions are growing faster than long positions.

Unfavorable market conditions are forcing banks to lower their gold price forecasts. CIBC, for example, notes that persistently high inflation, exacerbated by the conflict in the Middle East, is pushing the Federal Reserve toward a more aggressive monetary policy stance. This creates challenges for XAU/USD.

From a technical perspective, gold continues to consolidate within the 4,080–4,200-per-ounce range on the daily chart. Only a breakout above or below this range will establish the direction of the next move. This creates an opportunity to place pending buy orders at $4,200 and pending sell orders at $4,080.