Gold fell sharply on Monday, breaking below the $4,200 per ounce level and hitting its lowest price since early August. Spot gold traded around $4,156 by 08:14 GMT, according to Reuters, extending losses to nearly 3 percent and extending last week's decline of more than 2 percent. The drop marked a decisive breach of the $4,240 support area that had held for roughly two weeks, corresponding to the 61.8 percent Fibonacci retracement level.
The selloff was driven primarily by surging U.S. Treasury yields. The 10-year yield climbed to approximately 5.23 percent, matching the high reached last week and standing at its highest level since 2007. Real yields on Treasury Inflation-Protected Securities rose to 2.83 percent as of September 25, approaching levels seen only during the 2008 financial crisis outside of the Lehman Brothers period. The combination of rising nominal and real yields has increased the opportunity cost of holding gold, a non-interest-bearing asset, prompting investors to reduce positions.
Fed Rate-Hike Expectations Add Pressure
Markets now assign roughly a 70 percent probability to another Federal Reserve rate increase in October, according to CME FedWatch data cited by Reuters. The Fed raised its benchmark rate by 25 basis points at its September 15-16 meeting, its first hike in three years. Cleveland Fed President Beth Hammack reinforced the hawkish tone on Friday, warning that persistently elevated inflation risked becoming embedded in public expectations.
Rising oil prices have compounded the inflation concern. Crude oil continued to climb on geopolitical tensions between the United States and Iran, including the rejection of a proposal regarding the Strait of Hormuz. Higher energy costs feed into inflation expectations, which in turn support the case for tighter monetary policy and higher yields.
Technical Picture Weakens
Gold's break below $4,240 has weakened the near-term technical outlook. The metal is now trading below its 50-day simple moving average near $4,320 and its 100-day SMA around $4,298, while the 200-day SMA sits further above at approximately $4,540. On the downside, immediate support is seen around $4,140-4,150, with the next significant floor near $4,000-4,050. A sustained move below $4,100 would open the door to further losses.
Gold is now down approximately 25 percent from its January all-time high near $5,600, reflecting a fundamental shift in the interest-rate environment. The metal has struggled to benefit from its traditional safe-haven role amid geopolitical tensions, as the yield advantage of dollar-denominated bonds has weighed more heavily.
Silver Also Under Pressure
Silver mirrored gold's decline, falling roughly 4 percent to around $40 per ounce. The white metal has been particularly sensitive to rising real yields, given its industrial demand component and higher volatility relative to gold.
What to Watch This Week
Key data releases this week include U.S. personal consumption expenditures (PCE) inflation and nonfarm payrolls, which will provide further clues on the trajectory of Fed policy. Until then, the combination of elevated Treasury yields, a firm U.S. Dollar Index trading around 101.16, and rising oil prices leaves gold's near-term outlook under continued pressure.
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