Three-month low: Gold recovers, but Fed rate hike bets keep it under pressure

A mix of bearish drivers keeps Gold under renewed selling pressure.
Expectations of a December Fed rate rise and a slight USD rebound pressure bullion.
Next Tuesday's FOMC meeting comes into focus as the key market event.

Gold (XAU/USD) slipped below $4,000 in Friday's Asian session. A modest rebound followed the fresh three-month low beneath that psychological threshold, but further gains appear constrained. Although the Federal Reserve (Fed) recently indicated no urgency to raise interest rates, traders continue to price in around an 80% probability of another increase in borrowing costs at its December policy meeting. Oil-related inflation concerns also reinforce expectations of further Fed tightening. This remains a major driver of outflows from non-yielding bullion.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Supply worries linked to the intensifying Middle East conflict have kept crude oil close to Tuesday's one-month high. Fighting between Saudi Arabia and Yemen's Iran-backed Houthi movement has intensified sharply. Houthi drone and missile attacks have targeted the kingdom's airports and vital energy infrastructure. Meanwhile, Iran’s Islamic Revolutionary Guard Corps (IRGC) said renewed US attacks could lead Tehran to invade neighbouring countries and strike bases supporting US military operations under its new offensive strategy.

A report that the US and Israel have prepared a brief but intense military campaign against Iran after the US midterm elections adds to these tensions, sustaining the geopolitical risk premium. At the same time, hawkish expectations for the Fed have supported a modest recovery in the safe-haven USD from a three-week low, adding pressure on Gold. Even so, traders may hold back from new directional positions until the Fed's policy outlook becomes clearer. Next week's closely watched two-day FOMC meeting therefore remains the main focus.

Interest rates are widely expected to remain unchanged when the Fed delivers its decision on Wednesday. With no updated economic projections due, investors will examine the policy statement and remarks by Fed Chair Kevin Warsh at the subsequent press conference. Next Thursday brings the Advance US Q3 GDP report and the US Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation measure. Both releases will be important drivers of the USD and give Gold a fresh catalyst.

Daily price chart: XAU/USD

Technical Outlook

34.34 is the current Relative Strength Index reading, just above oversold territory. The Moving Average Convergence Divergence (MACD) remains negative at -6.51, suggesting selling pressure continues despite tentative signs of stabilisation. XAU/USD bears had gained a key signal overnight as price broke below short-term trading-range support and maintained a close beneath $4,100. However, the metal's resilience below the psychological $4,000 level calls for caution before positioning for additional declines.

Fresh selling is likely to cap any recovery attempt around $4,065-$4,070, where former trading-range support now acts as resistance. The next barrier is the $4,100 round number. A break above it could spark short covering, taking XAU/USD towards the intermediate $4,170 hurdle and then $4,200. A sustained move and acceptance above $4,200 would be required to support the case for a lasting near-term recovery.

(An AI tool assisted in preparing this article's technical analysis. Learn more.)

Fed: Key Questions

The Federal Reserve's role and its influence on the US Dollar

Responsibility for US monetary policy rests with the Federal Reserve (Fed). Price stability and full employment are its two mandates, with interest-rate adjustments serving as the main means of pursuing them. If prices climb too rapidly and inflation exceeds the Fed’s 2% target, the central bank raises rates. Higher borrowing costs across the economy make the US more attractive to international investors, strengthening the US Dollar (USD). Conversely, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut rates. This encourages borrowing but puts pressure on the US Dollar.

Eight meetings a year: the Fed's policy schedule

Eight times a year, the Federal Open Market Committee (FOMC) meets to review economic conditions and decide monetary policy for the Federal Reserve (Fed). Twelve Fed officials take part: the Board of Governors' seven members, the president of the Federal Reserve Bank of New York, and four of the other eleven regional Reserve Bank presidents. Those four serve rotating one-year terms.

Quantitative Easing (QE): the mechanism and USD impact

When circumstances are extreme, the Federal Reserve may turn to Quantitative Easing (QE). This policy substantially expands the flow of credit through a stalled financial system. As an unconventional measure, QE is used in crises or periods of exceptionally low inflation. It was the Fed’s preferred response during the Great Financial Crisis in 2008. The Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result of QE.

Quantitative Tightening (QT): the mechanism and US Dollar impact

Reversing QE, Quantitative Tightening (QT) involves the Federal Reserve halting bond purchases from financial institutions. It also allows bonds in its portfolio to mature without reinvesting the principal in new bonds. QT generally supports the value of the US Dollar.