Could a Fed hike push gold below $4,300 despite rising geopolitical risk?

Gold steadied near $4,300 an ounce on Tuesday after sliding to its lowest level in more than a month, as investors balanced rising geopolitical risk against a stronger dollar and a sharp repricing of US interest rates ahead of the Federal Reserve’s policy decision.

Bullion recovered from Monday’s lows but remained under pressure after September futures settled at $4,310, their weakest close since August 6.

The move came as the 10-year US Treasury yield briefly crossed 5% for the first time since 2023, raising the opportunity cost of holding non-yielding gold.

Fed risk is dominating the gold trade

The immediate problem for gold is that the usual safe-haven playbook is not working cleanly.

Middle East tensions are worsening, but investors are also buying dollars and demanding higher bond yields as crude oil above $100 revives inflation concerns.

Markets are pricing a greater than 90% chance of a quarter-point Fed increase on Wednesday.

The September 15-16 meeting will also bring updated economic projections, leaving the new dot plot and Chair Kevin Warsh’s guidance at least as important for bullion as the rate decision itself.

Trade Nation senior market analyst David Morrison said that the recent price action suggests investors have increasingly favoured the dollar over gold as the immediate haven during periods of market stress.

That matters because a stronger greenback makes bullion more expensive for buyers using other currencies.

Oil makes the Middle East risk more complicated

Gold would normally benefit from another escalation in the Middle East. This time, the transmission mechanism is less straightforward.

Brent crude has remained above $100 after attacks on Saudi infrastructure and worsening fighting around Yemen increased concern about regional supply routes.

Saudi Arabia’s damaged East-West pipeline has recently carried between 2.6 million and 4 million barrels a day and could remain constrained for several weeks.

Higher oil supports demand for geopolitical hedges, but it also raises the risk that US inflation remains sticky.

That keeps pressure on bonds and strengthens the case for tighter Fed policy, both of which work against gold.

BofA rates strategist Meghan Swiber told MarketWatch that once markets heavily price a rate increase, holding rates unchanged becomes harder because it risks another sharp rise in longer-term Treasury yields.

For gold, that means Wednesday’s decision is also a test of Fed credibility.

Gold rebound still needs confirmation

The technical picture reflects the same uncertainty. Gold is trying to stabilise around the psychologically important $4,300 level and remains close to its 50-day moving average near $4,275.

A sustained move above roughly $4,323 would improve the near-term tone and put the $4,400-$4,412 region back into focus.

However, failure to hold $4,275 would expose support around $4,234 and increase the risk of a deeper correction.