Gold prices fell sharply on Tuesday as surging US Treasury yields weighed on the precious metal, which generates no interest income. XAU/USD traded at $4,364, down over 1.10%, according to FXStreet analysis. The US 10-year Treasury yield declined by more than 1 basis point to 4.712%, though yields reached their highest levels since 2007 earlier in the session, creating headwinds for gold.
The US Dollar Index, tracking the performance of the dollar against a basket of six currencies, remained flat at 99.60. Geopolitical tensions in the Middle East continued to support oil prices and create uncertainty for investors. US President Donald Trump stated that Iran is unlikely to accept Washington's terms to end hostilities, while Iran adopted an offensive stance, indicating that the Strait of Hormuz will remain closed if Washington does not accept their terms.
This uncertainty favors oil prices but also factors into expectations for Federal Reserve monetary policy decisions. Economic data released during the session showed weakness in the US housing sector. Housing Starts in July fell 12.4% month-over-month, declining from June's 1.415 million to 1.239 million, primarily due to higher mortgage rates and elevated home prices.
Industrial Production for July also disappointed, coming in at 0.2% month-over-month versus the expected 0.3%. These weaker-than-expected economic indicators and lower inflation data have forced investors to price out rate hikes for 2026, according to FXStreet. The market is now awaiting Wednesday's release of the Federal Reserve's policy meeting minutes for guidance on the expected trajectory of future interest rates.
From a technical perspective, gold prices fell below the 100-day Simple Moving Average at $4,384 and the $4,400 mark. The Relative Strength Index shows declining bullish momentum, signaling that selling pressure is intensifying. If XAU/USD breaks below $4,350, analysts anticipate testing $4,300, followed by potential support at the July 6 high of $4,202, the 50-day SMA at $4,146, and the $4,100 level.
On the upside, resistance levels stand at $4,400, followed by the psychological $4,450 level and the $4,500 milestone. Gold's inverse correlation with US Treasury yields remains a key driver of price movements. As a yield-less asset, gold typically rises with lower interest rates while higher rates reduce its attractiveness to investors.
Additionally, the strength of the US Dollar, in which gold is priced, continues to play a crucial role in determining the precious metal's performance in international markets.
Source: fxstreet.com