Below $4,150: Gold retreats as high oil prices bolster prospects of further Fed tightening

• $4,120 is gold’s approximate level after a decline in early Asian trading on Wednesday.
• Persistently high oil prices fuelled inflation worries, potentially keeping the Fed on course for another rate increase later this year.
• According to CME's FedWatch Tool, traders put the probability of an October rate increase at 16.1%.

$4,120 is the approximate level for Gold (XAU/USD) after a modest fall. The decline extends into Wednesday’s early Asian session as high oil prices stoke worries over persistent US inflation. Those concerns also raise the prospect of the Federal Reserve (Fed) maintaining higher interest rates for longer.

On Monday, the Iranian military said Tehran had not completely shut the Strait of Hormuz and could widen the blockade to include the Bab al-Mandeb Strait and the Suez Canal. Meanwhile, the Houthis claimed attacks on King Khalid International Airport in Riyadh, Saudi Aramco facilities in Yanbu on the Red Sea Coast, the Shaybah oilfield and Saudi naval forces.

Gold could come under pressure from oil-related inflation worries as Middle East tensions persist and energy shipments through the Persian Gulf face potential disruption.

Nearly a 16.1% probability of another quarter-point rate increase at the Fed’s October 27-28 meeting is now priced in by traders. This follows last week’s remarks by Chairman Kevin Warsh, which were seen as strengthening expectations of a pause.

With inflation still exceeding the Fed’s 2% target, traders are watching whether policymakers hold rates steady this month and restart tightening later in the year. Although widely used to hedge inflation, gold pays no interest. High interest rates therefore reduce its appeal.

European risk assets lag as French unrest weighs and Dollar strengthens

A widening split across risk assets is evident, according to Commerzbank analysts, who note that "European equities declined amid political unrest in France, while US Treasury yields rose as the equity recovery reduced safe-haven demand." Against that background, the bank says "the USD was slightly firmer," while changing risk appetite was also visible in commodities: "Brent crude oil prices fell 0.3% to USD109.55" and "Gold fell 0.6% to USD4,141."

Warsh highlights investment growth and AI, leaves year-end Fed decisions open

At 5.6/10, Fed Chair Warsh’s FXS Speechtracker score sits modestly below the historical average of 6.1/10. It points to a slightly less impactful, though still constructive, speech. Warsh’s admission of being “over-scarred from the global financial crisis” signals caution. He nevertheless draws attention to structural growth and an investment surge attributed to “good policies,” without prejudging the October or December meetings. His focus on AI as a demand-side force, alongside field hearings and task forces, suggests active efforts by the Fed to develop new intellectual capital. The speech offers no explicit guidance, however, that would materially alter the policy outlook from the established baseline.

At a still-elevated 127.51, the FXS Fed Sentiment Index registered a change of 0.00 points. The unchanged reading confirms a firmly hawkish overall policy tone, despite the absence of a fresh signal. Together, the flat index and below-average speech score suggest Warsh largely reinforced existing expectations of a Dollar-supportive Fed stance, rather than delivering any new hawkish or dovish surprise.

Technical Analysis: Key resistance levels constrain Gold’s upside

Below both the 20-day Bollinger band middle line and the 100-day simple moving average (SMA), XAU/USD opens at a pivotal level on the daily chart. These overhead barriers continue to restrict rallies, leaving the near-term bias bearish. A lower 14-day Relative Strength Index (RSI) reading of around 41 adds to the weak momentum picture. It points to downside risk, but not yet to oversold conditions.

A broad overhead supply zone could restrain any recovery. Its first barrier is the Bollinger band middle line near $4,170, ahead of the 100-day SMA around $4,235 and the upper Bollinger band at $4,275. If selling pressure persists, the next significant support lies near $4,065 at the lower Bollinger band, where buyers may try to check the decline.

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