Gold Between the Fed, Treasuries and Geopolitical Risk

Gold is going through a particularly complex phase, in which factors traditionally supportive of the precious metal are being offset by macroeconomic pressures that are limiting its short-term upside potential.

As of August 18, 2026, XAU/USD is trading at around $4,397 per ounce, after fluctuating between approximately $4,386 and $4,436 during the session. Despite the recent decline, the price has gained nearly 10% over the past month and more than 30% compared with a year ago.

This movement highlights a return of defensive demand following the sharp correction observed between January and June. However, to determine whether the recovery can develop into a new bullish phase, monetary policy, inflation, the labour market, Treasury yields, oil prices and geopolitical risk must all be considered together.

The US labour market supports gold

One of the main factors supporting the precious metal comes from the US labour market.

In July, nonfarm payrolls fell by 23,000, following an average monthly increase of just 34,000 jobs over the previous 12 months. The unemployment rate remained relatively stable at 4.1%, while the labour force participation rate stood at 61.4%, down 0.7 percentage points since January.

The data do not necessarily indicate that the US economy is immediately entering a recession. The total number of unemployed people is not rising rapidly, and some sectors, such as healthcare, continue to create jobs. Nevertheless, July’s employment decline represents a clear sign of slowing economic activity.

Labour market weakness is generally positive for gold. Slower growth reduces the likelihood that the Federal Reserve will continue raising interest rates and may signal a shift towards a more accommodative monetary policy.

Lower interest rates—or even expectations of future rate cuts—tend to reduce both bond yields and the opportunity cost of holding gold, an asset that does not generate interest income.

Core inflation falls, but energy remains a concern

The latest consumer price data also contain some favourable elements.

In July, the US Consumer Price Index increased by 0.1% from the previous month and by 3.4% year on year, slowing from 3.5% in June. Core inflation, which excludes food and energy, declined from 2.6% to 2.5%.

The core component is particularly important because it helps identify the direction of more persistent inflationary pressures. Its slowdown theoretically reduces the need for further interest-rate increases by the Federal Reserve.

The picture changes, however, when energy prices are considered. In July, the energy component of the CPI increased by 14.7% compared with a year earlier. At the same time, Brent crude returned above $90 per barrel, driven by tensions in the Middle East and disruption risks affecting the Strait of Hormuz.

The PCE Price Index, the inflation measure most closely monitored by the Federal Reserve, also calls for caution. In June, the headline index declined by 0.1% month on month but remained at 3.7% year on year. The core component increased by 0.1% from May.

This creates a conflicting scenario: underlying inflationary pressures are easing, while energy prices threaten to trigger a renewed acceleration in headline inflation.

The risk of a stagflationary scenario

The combination of a weakening labour market and rising energy prices is pushing the economy towards a potentially stagflationary environment.

Stagflation refers to a period characterised by weak economic growth and high inflation. It is one of the most difficult scenarios for central banks to manage: cutting interest rates may support the economy but exacerbate inflation, while keeping rates high may contain prices but deepen the slowdown.

Historically, gold tends to benefit from these conditions over the medium to long term, given its role as a store of value and a hedge against the loss of purchasing power.

Its short-term reaction, however, may be different. If higher oil prices strengthen expectations of further rate increases, bond yields and the dollar may rise, temporarily weighing on XAU/USD.

Inflation is therefore not automatically positive for the precious metal. A distinction must be made between long-term hedging demand and the market’s immediate reaction through interest-rate expectations.

Federal Reserve divided over monetary policy

At its July 28–29 meeting, the Federal Reserve maintained the federal funds target range at 3.50–3.75%.

The decision was approved by nine votes to three, a split that highlights the uncertainty within the Federal Open Market Committee.

Following the release of the employment report, lower-than-expected inflation and weaker retail sales, the market increased the probability of a monetary-policy pause. Current estimates assign approximately a 65% probability to rates being left unchanged at the September 15–16 meeting.

Before that decision, investors will examine several important events:

• the minutes of the Fed’s July meeting;

• signals from the Jackson Hole symposium;

• July PCE data, due on August 26;

• the next employment report;

• August CPI data, scheduled for September 11.

The most favourable combination for gold would be slowing core inflation, a weak labour market and declining real yields. A renewed increase in energy inflation, accompanied by a more hawkish Federal Reserve, would instead represent the main short-term risk.

Treasury yields at new highs increase gold’s opportunity cost

The bond market currently represents the main obstacle for the precious metal.

The yield on the ten-year US Treasury has risen towards 4.74%, while the 30-year yield has reached approximately 5.33%, its highest level since 2007.

When nominal and real yields rise, bonds become more competitive relative to gold. Investors can earn substantial interest by holding Treasuries, whereas the precious metal generates no coupon income. This mechanism explains much of the downward pressure observed during recent sessions.

The rise in yields, however, is not solely the result of expectations surrounding the Federal Reserve. The bond market is also pricing in:

• higher energy inflation;

• the growing federal deficit;

• increased government debt issuance;

• concerns over US fiscal sustainability;

• strong demand for capital linked to technology investment;

• reduced investor willingness to purchase long-duration securities.

This distinction is crucial. If yields rise because the economy is strong and the Fed remains restrictive, the impact on gold is predominantly negative. If they rise because of concerns about deficits, debt and monetary stability, the metal may continue to attract demand as an alternative to traditional financial assets.

The dollar remains decisive for XAU/USD

The dollar also plays a central role.

Because gold is primarily quoted in US dollars, a stronger dollar makes the metal more expensive for investors using other currencies, potentially reducing demand. A weaker dollar generally produces the opposite effect.

In the current market environment, the US currency is benefiting from high yields and demand for liquidity. Expectations of a Fed pause, however, are limiting its appreciation potential.

A simultaneous decline in both the dollar and real yields would probably represent the most favourable macroeconomic catalyst for a break above the technical resistance around $4,500.

US-Iran war: an ambivalent effect

The conflict between the United States and Iran remains the main geopolitical factor being monitored by the markets.

The failure to extend the ceasefire, the more offensive stance announced by Tehran and difficulties affecting transit through the Strait of Hormuz are increasing the risk of disruptions to global energy supplies.

In theory, a military escalation should support gold through greater demand for safe-haven assets. In practice, however, the relationship has become more complex.

Geopolitical risk produces two opposing effects:

1. it increases defensive demand for gold;

2. it pushes oil prices and inflation higher, supporting Treasury yields and the dollar.

During the most intense phases of the crisis, gold did not always perform immediately as a safe haven. After reaching its January high, the price fell below $4,000 in June, partly because many investors prioritised liquidity and some institutions may have reduced their reserves.

The recovery towards $4,400 in August indicates that the metal’s defensive function is gradually re-emerging. A renewed escalation could therefore support its price, provided that the resulting increase in oil prices does not cause real yields to rise even more rapidly.

ETFs and institutional purchases support the market

Structural demand remains one of gold’s main strengths.

In recent years, several central banks have increased their reserves to reduce dependence on the dollar and diversify their assets. The strength of the latest recovery and the premiums observed in Asian markets also suggest renewed institutional demand for large gold bars.

This interpretation should be treated as an inference rather than definitive confirmation of new official purchases. Central banks, sovereign wealth funds and large investors may be rebuilding positions reduced during the initial phase of the crisis.

During the first half of August, gold-backed ETFs recorded inflows of approximately $7 billion, bringing total assets under management close to $582 billion. This is a positive signal, although it is not yet sufficient to establish a new phase of broad-based buying.

Demand for jewellery, coins and small bars appears weaker. Prices above $4,000 reduce the metal’s affordability, especially in Asian markets that are sensitive to final purchase costs.

The current rally therefore depends more heavily on institutional investors, ETFs, sovereign wealth funds and central banks than on traditional consumer demand.

Technical analysis: recovery remains incomplete

From a technical perspective, the recovery that began below $4,000 has taken XAU/USD back above the $4,380 resistance level and above its short-term 50-period exponential moving average.

The structure observed during August shows rising highs and lows. The short-term trend therefore remains moderately bullish as long as the price holds within the $4,320–$4,350 area.

Over the longer term, however, the market has not yet provided definitive confirmation. The price remains below the 200-day moving average, currently located around $4,504. This threshold separates a simple technical rebound from a potential structural resumption of the bull market.

Weak momentum, but not entirely bearish

Technical indicators show a loss of strength over the very short term.

The 14-period RSI is around 44–45. This reading indicates moderately bearish momentum but not an extreme oversold condition. The MACD remains slightly positive, suggesting that the recovery has not yet been completely exhausted.

The Stochastic Oscillator and Stochastic RSI have entered oversold territory, while the CCI is close to −89. These signals confirm the recent bearish pressure but also indicate the possibility of a technical reaction if the main support levels hold.

The ADX, close to 30, points to a relatively significant directional move. The ATR indicates that volatility remains elevated, although it is lower than during the most intense phases of the geopolitical crisis.

Overall, the indicators describe a short-term correction within a more constructive structure. Momentum has weakened, but there is not yet sufficient evidence to confirm a medium-term bearish reversal.

The technical levels to monitor

Initial support is located between $4,380 and $4,386. A break below this area could extend the correction towards $4,350–$4,320.

The $4,320 level represents the most important threshold for preserving the August trend. A daily close below it would weaken the technical structure and open the way towards $4,280–$4,260, followed by $4,200–$4,180.

If the dollar were to appreciate sharply and yields continued to rise, a return towards the psychological $4,000 threshold could not be ruled out.

On the upside, initial resistance is located between $4,436 and $4,450. A daily close above this range would favour an extension towards $4,470–$4,480.

The real barrier, however, remains between $4,500 and $4,505, where the 200-day moving average is currently located. A confirmed break above this level, accompanied by declining yields and increasing trading volumes, would provide a much stronger technical signal.

Under this scenario, the next targets could be identified at $4,550, $4,620–$4,650 and $4,750. A particularly strong move could subsequently shift the market’s attention towards $4,900–$5,000.

Three possible scenarios for gold

Bullish scenario

Gold breaks above $4,450 and subsequently $4,505, supported by a more accommodative Federal Reserve, slowing core inflation, declining real yields and a weaker dollar.

A geopolitical escalation could accelerate the move, particularly if safe-haven demand outweighed concerns about energy-driven inflation.

Sideways scenario

The price remains between $4,320 and $4,505. This would be the most consistent scenario during a period of consolidation ahead of the next macroeconomic releases and further signals from the Fed.

Within this range, the market could experience large and rapid fluctuations without establishing a clear medium-term direction. The $4,400 level would continue to represent the main equilibrium point.

Bearish scenario

A break below $4,320 would provide the first sign of significant technical deterioration. This scenario would become more likely if oil prices continued to rise, the Fed adopted a more hawkish tone, inflation accelerated again and the ten-year Treasury yield remained consistently above 4.75–4.80%.

In that case, the market could move towards $4,280–$4,260 and subsequently $4,200–$4,180.

Outlook: gold remains positive, but no breakout yet

Gold’s overall outlook remains favourable over the medium to long term, while the short-term bias is neutral to bullish but exposed to the risk of a correction.

Labour market weakness, slowing core inflation, institutional purchases and geopolitical tensions continue to support demand. On the other hand, the ten-year Treasury yield near 4.74%, the 30-year yield above 5.3%, oil prices above $90 and resistance at the 200-day moving average prevent a new bullish phase from being considered confirmed.

The two key levels remain $4,320 and $4,505. Between these thresholds, volatile consolidation remains the dominant scenario. A move above $4,505 would significantly increase the probability of another bullish leg, while a break below $4,320 would make a deeper correction more likely.

The direction of the next move will depend less on geopolitics considered in isolation and more on the combined reaction of oil prices, inflation, the Federal Reserve, the dollar and real yields.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, an invitation to invest or a trading recommendation. Gold may experience rapid and significant price fluctuations, particularly in response to macroeconomic and geopolitical events.