CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Scan to Download iOS&Android APP

Gold hits August ‘21 lows as Fed hike expectations spike: Could the metal drop further?

By Piero Cingari

15:49, 15 September 2022

Share this article
In this article:
1783.93 USD
12.75 +0.720%
US Dollar Index
104.9921 USD
-0.254 -0.240%

Subscribe to Weekly Highlights

The major market events for the week ahead right in your inbox. Subscribe
gold bars and downward trend
Gold prices falling in a bearish market. Red arrow going down over gold bullion bars. – Photo: Shutterstock

In my latest piece, "Gold price analysis: Brace for a rate shock as inflation runs amok", I noted that a fresh spike in Fed rate hike expectations could have pushed gold to test its yearly lows.

This risk materialized on September 15 and gold fell below the crucial year-to-date low of $1,680 per ounce, hitting an intraday low of $1,663/oz exactly equal to the bottom seen in August 2021.

Gold is now on the verge of entering a bear market, having fallen 19.4% from its peak on March 8, 2022.

The move was prompted by the release of August inflation data (8.3% year on year), which exceeded market expectations (8.1%) and prompted investors to bet on a more aggressive Fed in rate hikes. Gold has once again been hit by spike in the US dollar (DXY) and US Treasury yields.

The market is now fully pricing in a 75 basis point increase at the Federal Reserve meeting next week, and also discounting with a 20% probability a rise of a full percentage point.

So, where do we go from here? Is a there a floor for gold prices or is the metal doomed to a slow and unstoppable decline?

What is your sentiment on Gold?

Vote to see Traders sentiment!

Chart: Gold at its lowest since August 2021, flirting with a bear market

A chart showing gold prices and drawdown from peakGold (daily) price chart as of September 15, 2022 – Photo:, Source: Tradingview

Gold fundamental analysis: Real yields in command

This week, US real yields rose to 1%, the highest since December 2018, while gold fell to its August 2021 lows.

This is not by chance. Gold prices are inextricably linked to the fate of US real rates. Higher real yields reflect a stronger Fed hawkishness and act as a deterrent to investing in non-yielding assets such as gold.

The correlation between gold and US real yields is currently very strong and inverse (-0.89).

Can real yields keep climbing and gold keep dropping from here?

a chart showing gold vs US real yieldsGold vs US real yields (10-year), high and inverse correlation – Photo:, Source: Tradingview

The more the Fed indicates its intention to hike interest rates, the higher real yields rise, driving down the price of gold.


1,783.93 Price
+0.720% 1D Chg, %
Long position overnight fee -0.0061%
Short position overnight fee 0.0025%
Overnight fee time 22:00 (UTC)
Spread 0.18

Oil - Crude

72.99 Price
-2.200% 1D Chg, %
Long position overnight fee -0.0157%
Short position overnight fee 0.0013%
Overnight fee time 22:00 (UTC)
Spread 0.03


22.64 Price
+1.970% 1D Chg, %
Long position overnight fee -0.0062%
Short position overnight fee 0.0023%
Overnight fee time 22:00 (UTC)
Spread 0.020

Oil - Brent

78.09 Price
-2.140% 1D Chg, %
Long position overnight fee -0.0216%
Short position overnight fee 0.0061%
Overnight fee time 22:00 (UTC)
Spread 0.04

If the Federal Reserve intends to continue raising interest rates for an extended period of time, gold prices have not yet reached rock bottom.

The dollar becomes more attractive when interest rates and Treasury yields rise, thereby reducing the investment demand for gold.

However, there is a point at which further expectations of an increase in interest rates might lose their ability to exert downward pressure on gold prices. Gold's negative relationship with interest rates may decouple in two particular economic scenarios.

Is there any bullish fundamental case for gold?

Gold's recovery in the medium term is based on two possible macroeconomic scenarios.

  1. A recession characterised by falling inflation
  2. A prolonged stagflation

In the first scenario, further strong rate increases would inevitably cause the economy to enter a recession. If this is accompanied by falling inflation, the Fed will be compelled to stop or reverse its rate hike path, which will benefit all assets that are extremely sensitive to Fed rates, such as gold or the Nasdaq 100 as explained here

In a context of prolonged stagflation, which is defined as low growth and high inflation. gold could resurrect and act as a traditional inflation hedge since gains offered by Treasury yields or the US dollar may no longer be sufficient to offset the prospect of higher inflation and lower growth. 

In order for this scenario to play out, investors must support the idea that inflation may continue to outpace Treasury yields for a longer period of time. This would result in a massive rotation away from bonds and into assets that have historically generated enormous positive returns during periods of high stagflation, such as gold in the 1970s. 

Gold technical analysis: bullish RSI divergence

gold technical analysisGold technical analysis, as of September 15, 2022 – Photo:, Source: Tradingview

For traders who place greater emphasis on technical analysis, gold prices have formed a bullish RSI divergence.

This occurs when prices hit new lows, but the indicator remains above the previous lows.

The daily relative strength index (RSI) did not fall below the 20 July low of 24; however, gold prices fell below previous lows ($1,680) to $1,663.

It might be a sign that the fierceness of the bearish movement is losing steam, which may indicate that the bottom of a downtrend has been reached.

Related reading

Rate this article

Share this article

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Latest Commodities news

Still looking for a broker you can trust?

Join the 475.000+ traders worldwide that chose to trade with

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading