Gold hits two-month low as bears await break below $4,100 amid sustained USD strength

Gold (XAU/USD) has reached a two-month low during the Asian session on Tuesday, with investors now anticipating a break below the $4,100 mark before positioning for further losses. Despite the possibility that the Federal Reserve may raise interest rates again by the end of the year, the US Dollar (USD) remains strong and continues to pressure gold prices.

This week's macroeconomic data indicated a moderate decline in inflation and a slight deceleration in the labor market. In addition, crude oil prices are hovering near a four-week low, which has helped ease supply concerns and reduced pressure on the Federal Reserve to raise interest rates. However, traders still believe there is an 85% chance that the Fed will raise borrowing costs once more by the year's end.

Deutsche Bank economists argue that the recent weaker-than-expected payroll data has not significantly altered the overall employment picture. They state that while the headline number was disappointing, the broader labor market remains robust, particularly when considering recent ADP and jobless claims data. Consequently, their team still anticipates two more 25 basis point Fed hikes in the coming quarters.

Persistent geopolitical tensions and high US bond yields keep the USD close to its highest level since April 2025, further contributing to gold's downward pressure. The recent fiscal shock in France has also led to increased volatility in the fixed income market, supporting the US bond market and reinforcing the greenback's strength.

This situation suggests that the most likely direction for gold is to continue declining. Therefore, traders are closely monitoring the upcoming FOMC meeting minutes, as well as speeches from influential FOMC members and any new geopolitical developments that could impact the USD and potentially provide relief to gold prices.