Gold holds steady below $4,150 amid elevated US yields

Gold prices stayed steady around $4,140 during the early Asian session on Tuesday, as pressure from a stronger US Dollar and elevated US Treasury yields was counteracted by lower expectations of a Federal Reserve rate hike this month. The 10-year Treasury yield increased by 7 basis points to 5.349%, while the 30-year Treasury bond yield rose by 3 basis points to 5.661%.

Analyst Fawad Razaqzada from forex.com suggested that we might witness a short-term decline in gold prices before substantial buyer intervention. This is due to the fact that the US Dollar has been rising and yields are high, according to Razaqzada. The Federal Reserve's decision to tighten its policy this month was postponed after US Nonfarm Payrolls data came in weaker than expected in September, and the figures for the previous two months were revised downwards.

Interest-rate swaps indicated a 22.7% chance that the Fed would raise benchmark borrowing costs at their October meeting, as per the CME FedWatch tool. Traders are now watching the minutes from the September Federal Open Market Committee meeting, which is set for Wednesday. OCBC analysts argue that gold remains constrained by the broader rates environment, noting that yields have not fallen significantly and the US Dollar remains strong, limiting follow-through in gold.

The more important catalyst for gold's recovery, they caution, is whether softer US data can pull long-term and real yields lower on a more consistent basis. Elevated oil prices continue to pose a challenge by keeping inflation and term premium concerns alive. The Fed's stance has become more hawkish, with a 9.2/10 FXS Speechtracker score well above the 8.1/10 historical average, indicating a stronger inclination towards further tightening.

This hawkish sentiment, coupled with the perception that higher yields may be due to increased term premiums, reduces the need for additional rate hikes. This suggests that the Fed is still supportive of the Dollar and keeps upward pressure on US yields. XAU/USD remains bearish on the near term, trading below the Bollinger simple moving average middle band and the 100-day moving average.