Gold Feels the Weight of USD, Yields on Hawkish Fed and CPI

Gold remains on the back foot as hotter-than-expected US inflation and hawkish Fed commentary fuel another round of tightening bets. With Treasury yields and the US dollar rising, gold bulls face an uphill battle to reclaim higher ground, while bears eye another break below $4,000.

Gold Prices Struggle as US CPI Reinforces Hawkish Fed Expectations

Hotter US CPI and Hawkish Fed Comments Fuel Dollar Rally

Tuesday's hotter-than-expected US inflation figures reinforced hawkish Fed commentary and the bullish case for the dollar. Headline CPI rose 0.4% m/m versus 0.3% expected, while core CPI increased 0.3% against expectations of 0.2%, its third consecutive monthly rise of that size. Fed Governor Christopher Waller backed at least a 25bp hike in December and raised the possibility of 50bp if core CPI rose 0.3% or more.

Markets responded aggressively, with LSEG data showing the Fed's implied rate path shifting 20–24bp higher across much of 2027 in just one session. That's almost another 25bp hike being priced in, with the expected policy rate now peaking around 4.6% compared with 4.4% previously. Such a sizeable hawkish repricing provides further support for the US dollar.

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Rising Treasury Yields Put DXY Breakout in Focus

The bond market took notice, with US two-year Treasury yields jumping around 19bp to 4.74%. Shorter-dated yields have risen faster than longer-dated yields, flattening the yield curve as markets price further Fed tightening. The 10-year minus 2-year spread has narrowed to around 26bp, while the MOVE index remains elevated near 96, signalling persistent bond-market volatility.

My bias has now shifted bullish for the US dollar, and I'm looking for a sustained break above 102.50 to signal another leg higher. Rising yields and hawkish Fed expectations favour further gains, although Friday's US PPI figures could provide the next test of this bullish view.

Source: ICE, TradingView

Gold Futures (GC) Face Further Pressure as Fed Tightening Bets Rise

While gold bulls made solid progress last week, their efforts are already coming under fire. Last week’s bullish engulfing candle snapped a three-week losing streak, with prices closing firmly back above $4,000. Given the engulfing candle formed after an 18% decline (or 31% if measured from its all-time high), I felt gold bulls had a decent case for a swing low and countertrend move.

Yet a stronger US dollar, rising Treasury yields and hawkish Fed bets have already undermined that recovery, resulting in a bearish engulfing candle and pulling prices back to $4,038 on Tuesday. This makes $4,000 a likely pivotal level in today's session, a break below which brings $3,900 back into focus for bears over the near term.

 

Gold Bears Eye Another Break Below $4,000

I suspect traders will need to price out some of that additional tightening before gold stands a decent chance of heading back towards its 200-day EMA around $4,278. For now, sentiment is against gold, and bears may be seeking to fade rallies within Tuesday's range in anticipation of another break below $4,000.

At this stage, the best hope gold bulls have is that seasonality tends to be on their side in November and December. But macro forces can overpower seasonality if they are strong enough.

Source: COMEX, TradingView