Gold remains capped as hawkish Fed, higher bond yields and Iran risks support USD

Gold (XAU/USD) remains capped near the weekly low as hawkish Federal Reserve signals, higher bond yields, and geopolitical risks support the US Dollar (USD). After a modest uptick on Friday in Asia, the precious metal struggles to rise above the $4,300 mark. The US Federal Reserve's (Fed) hawkish outlook, combined with elevated US bond yields, contributes to the support for the USD.

Fed speakers have given more hawkish signals following the September rate hike and continue to signal potential further policy tightening. Fed Governor Michael Barr stated that the central bank is likely to deliver more rate hikes due to rising inflationary risks and a strong economy. New York Fed President John Williams also suggested another interest rate hike this year is a reasonable expectation.

The Fed’s sentiment remains clearly hawkish, with the FXS Fed Sentiment Index at 148.63, indicating a modest pullback in hawkish intensity. Inflation risks, driven by energy price hikes due to Middle East tensions and a possible 90-day ban on US diesel exports, support the Fed's rate hike expectations. This, in turn, pushes US bond yields to multi-year peaks.

The uncertainty surrounding the resolution of the US-Iran conflict adds to the geopolitical risk, validating the positive outlook for the safe-haven USD. Technical indicators, including the MACD and RSI, suggest persistent downside pressure, while a break below the 61.8% Fibonacci retracement at $4,231 could signal deeper losses.

However, a sustained break above the 50.0% retracement at $4,320 and the 38.2% level at $4,408 could soften the bearish tone.