Gold falls as Fed rate hike bets lift US Dollar to two-month high

Gold slipped on Wednesday as the Federal Reserve's anticipated interest rate hikes boosted the US Dollar and impacted the non-yielding metal. The XAU/USD pair traded at around $4,315, declining by 1.0% for the day. The US Dollar Index (DXY) reached a two-month high of 100.85 despite a fall in oil prices following positive developments in the Middle East.

The Fed's rate hike to the 3.75%-4.0% range aims to curb inflation to its 2% target, with further increases likely this year. Richmond Fed President Thomas Barkin expressed a hawkish stance, stating that economic conditions are firming and warning that high inflation could affect future inflation. The CME FedWatch Tool estimates a 53% probability of an October rate hike.

In the Middle East, US President Donald Trump reported a productive meeting with Iranian representatives in New York, discussing the Strait of Hormuz, asset release, and ending the war in "resistance" fronts. WTI Oil prices were near a two-week low of $89.50, still well above pre-war levels, and diplomacy efforts had yet to yield significant progress.

This scenario kept inflation concerns alive, maintaining elevated US Treasury yields, with the 2-year yield around 4.77%, similar to levels seen in 2024. The combination of a strong US Dollar, rising yields, and expectations of higher borrowing costs placed Gold at risk for additional declines. Technical analysis showed XAU/USD under bearish pressure, trading under the Bollinger Bands' 20-period SMA at $4,350 and the upper band at $4,395.

Support could be found at the lower band at $4,304, with $4,250 as a potential deeper support level in case of a breach.