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Gold faces the growing threat of a deeper pullback as fading momentum and rising global bond yields weaken the metal’s near term outlook. The World Gold Council said conflicting signals from the Treasury Department and Federal Reserve have ultimately created a negative backdrop for bullion.

Gold prices retreated as yields climbed around the world, raising the cost of holding an asset that pays no interest. That pressure intensified after hawkish monetary signals caused traders to reassess expectations for Federal Reserve policy.

“The US Treasury ‘appears’ to want lower yields,” WGC analysts wrote Tuesday. “The Fed wants lower inflation. Neither wants to break the economy, which may be the blunt way to achieve both,” they added.

The council suggested that the central bank has considerably more power to move markets than the Treasury. “Of the two, the Fed has more firepower. So, when Fed chair Warsh struck a hawkish tone last Friday, markets lurched.”

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That reaction was especially visible at the short end of the Treasury curve, where yields are highly sensitive to changes in monetary policy expectations. “A sharp jolt to the 2-year yield, reflecting expected tightening ahead, saw gold retreat below its 200dma.”

Fresh inflation figures added to the strain because price pressures remained uncomfortably strong. Warsh’s hawkish speech at the Jackson Hole Symposium also encouraged traders to place larger bets on Federal Reserve rate increases in the near future.

Higher expected interest rates tend to hurt gold by increasing its perceived opportunity cost compared with yield producing assets. Government bonds and cash instruments become more attractive when yields climb, forcing bullion to compete harder for investment capital.

“Meanwhile, global gold ETF inflows continued, albeit at a slower pace; futures net longs rose, while options’ aggregated bullish positioning pulled back slightly.” The mixed positioning suggests investors have not abandoned gold, although enthusiasm has cooled as the technical picture deteriorates.

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The World Gold Council warned that the metal could fall toward its rising 55 day average as short term momentum turns lower. Continued increases in sovereign bond yields could deepen the correction, particularly after speculative net long positions expanded sharply.

“Gold strength has extended to just shy of resistance from the 50% retracement of the 2026 fall and May high at US$4,769/oz – US$4,774/oz and the subsequent sharp setback has seen the market fall back below its 200-day average to leave the market in what may be a developing sideways range,” the analysts wrote.

That failed advance near major resistance has left gold vulnerable to additional selling. The break back beneath the 200 day average also signals that buyers have not yet regained firm control despite the earlier rally.

“With daily RSI momentum completing a top […] and with net long positioning having risen sharply we see scope for a deeper setback in this range, especially in light of the rise we are seeing globally for bond yields.” Elevated bullish positioning can magnify declines when traders rush to reduce crowded bets.

The first meaningful support level sits around the August low, although the more important test lies below it. “Support is seen initially at the mid-August low at US$4,311/oz and then more importantly at the rising 55-day average, currently seen at US$4,215/oz,” the analysts said.

The council does not necessarily expect a collapse through that lower level. “Our bias would be to look for a floor here again. Resistance is seen initially at the 13-day exponential average at US$4,474/oz, then the 200-day average, now seen at US$4,530/oz.”

A recovery above the 200 day average would improve the immediate technical outlook and suggest buyers are returning with conviction. Until that happens, however, rallies could struggle against elevated yields, persistent inflation and expectations for tighter Federal Reserve policy.

“[A move back] above this latter level would be seen to turn the near-term trend higher again, with resistance then seen back at the US$4,696/oz recent high, then US$4,769/oz – US$4,774/oz.” Gold therefore remains caught between durable investor demand and a monetary environment that increasingly favors interest bearing assets.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.