$3,950 level breached: Gold falls as US Dollar strengthens, US midterm elections in focus

Gold eases towards $3,930 in early Asian trading on Wednesday.
Gains in the US Dollar and bond yields put gold under pressure.
Q3 central bank gold purchases reached their fastest pace since the end of 2024, according to the World Gold Council.

Gold (XAU/USD) is down near $3,930. A stronger US dollar (USD) and rising Treasury yields are weighing on the metal in Wednesday’s early Asian session. For signals on fiscal policy, traders are awaiting the results of the US midterm elections.

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Uncertainty surrounding a potential US-Iran agreement and the midterm election results has accompanied a modest rise in the US Dollar. Treasury yields have also inched up, adding pressure to the dollar-denominated commodity. The election results remain in focus: polls and nonpartisan analysts favour Democrats taking the House from Republicans, but control of the Senate is still uncertain.

Fawad Razaqzada, market analyst at forex.com, said: “A Democratic clean sweep could potentially put pressure on the US dollar by making it harder for the administration to pass law, including measures related to the debt ceiling. If the dollar falls, that’s one way gold could potentially find some support,”

Central banks accumulated a net 321 tons of gold in the three months through September, according to the World Gold Council’s report published on Tuesday. Third-quarter (Q3) buying was the fastest since the end of 2024, despite pressure on the metal from higher oil prices and interest rates. The World Gold Council nevertheless lowered its forecast for growth in gold investment this year from 400 tons to 200 metric tons.

3.7% gold fall viewed as excessive despite higher US rate expectations

Commerzbank analysts describe a sharp retreat in gold, which "fell by 3.7% on Friday to USD 3,870 per troy ounce, its lowest level in more than a year," resulting in "a substantial monthly loss of almost 7% in October, which was even slightly larger than that recorded in September." Changes in monetary policy expectations account for much of the recent pressure, in their view: "given the robust US economy and inflation running well above target, a further rate hike in December is highly likely." Explaining the link to gold, Commerzbank says "expectations of rate hikes have led to rising bond yields and (real) interest rates, which in turn increase the opportunity cost of holding gold and, conversely, reduce the attractiveness of holding gold."

Yet interest rate developments "can only explain the current fall in the price of gold to a limited extent," the bank cautions. It notes that "following last week’s Fed meeting – at which, as expected, the Fed left interest rates unchanged – interest rate expectations have eased and both nominal and real bond yields have subsequently fallen." Commerzbank’s assessment against that backdrop is that "we consider the price decline in gold to be excessive and unwarranted. The arguments in favour of a rising gold price remain valid."

Technical Analysis: 100-day SMA Caps Gold as Outlook Stays Bearish

Trading below key trend and volatility indicators on the daily chart, XAU/USD continues to retreat with a bearish near-term bias. Spot gold remains beneath both the 100-day simple moving average (SMA) and the middle Bollinger band. This suggests rebounds are still constrained within a broader correction. At 36.09, the Relative Strength Index (RSI) sits just above oversold territory. The reading points to persistent downward pressure, alongside the possibility of intermittent corrective rebounds rather than a clear low marking selling exhaustion.

The middle Bollinger band near $4,080 provides the first upside resistance, ahead of the 100-day SMA at $4,205. Further resistance lies around $4,255 at the upper Bollinger band. Immediate support is at $3,900, aligned with the lower Bollinger band. A decisive breach would open scope for further losses. If that level holds, gold could consolidate within the existing band structure before attempting to test the cluster of resistance above.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Gold: Key Questions

What attracts investors to Gold?

Widely used to store value and facilitate exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now commonly regarded as a safe-haven asset: an investment considered attractive during periods of turbulence. Its independence from any particular issuer or government also underpins its widespread use as a hedge against inflation and currency depreciation.

Which institutions are the largest Gold buyers?

The largest holders of Gold are central banks. To support their currencies during turbulent periods, they typically diversify reserves and purchase Gold, reinforcing perceptions of economic and currency strength. Substantial Gold reserves can also bolster confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes of Gold, valued at around $70 billion, in 2022. That was the largest annual purchase on record. Emerging-economy central banks, including those in China, India and Turkey, are rapidly expanding their Gold reserves.

How does Gold move relative to other assets?

The US Dollar and US Treasuries, both leading reserve and safe-haven assets, have an inverse correlation with Gold. A declining Dollar typically supports Gold, helping investors and central banks diversify their holdings during unsettled periods. Risk assets also tend to move in the opposite direction to Gold. Stock market gains generally put pressure on the metal, whereas selling in riskier markets tends to support it.

Which factors drive Gold prices?

Gold prices respond to numerous influences. Its safe-haven appeal means geopolitical instability or concerns about a deep recession can trigger rapid gains. Since Gold offers no yield, falling interest rates generally support it, while higher borrowing costs tend to weigh on the metal. Most price movements, however, hinge on the US Dollar (USD), as Gold is priced in dollars (XAU/USD). Dollar strength typically restrains Gold prices; a weaker Dollar is more likely to lift them.