Gold retreats further as higher oil prices strengthen bets on Fed rate hikes

• Higher energy prices sustain inflation concerns as Gold retreats towards $4,100.
• Expectations of a further Fed interest rate rise by December continue to weigh on bullion.
• Trading beneath its key daily SMAs, XAU/USD retains a bearish broader technical outlook.

Rising oil prices associated with Middle East tensions continue to skew global inflation risks upwards, bolstering expectations that interest rates will stay higher for longer. Against this backdrop, Gold (XAU/USD) edges down on Tuesday for a third successive day. The metal is trading at around $4,123 at the time of writing, a daily decline of 0.42%.

Above $100, West Texas Intermediate (WTI) oil is trading at its highest in more than a month. Houthi attacks on Saudi energy infrastructure, alongside more frequent attacks on vessels in the Strait of Hormuz, are heightening fears of supply disruption.

Since the war broke out in late February, high energy costs have remained a significant driver of inflation. This has led major central banks to increase interest rates this year, leaving markets watchful for additional tightening.

September’s US Consumer Price Index (CPI) and Producer Price Index (PPI) readings both exceeded expectations. The reports reinforced expectations that the Federal Reserve (Fed) could raise rates again before the end of the year in its effort to return inflation towards its 2% target.

Following their recent retreat, the US Dollar (USD) and US Treasury yields are finding some support from these hawkish expectations. By increasing the appeal of interest-bearing assets, higher borrowing costs put pressure on non-yielding gold. A firmer US Dollar also raises the metal’s cost for buyers using other currencies.

At around 101.88, the US Dollar Index (DXY) is 0.10% lower on the day, though it remains above last week’s trough of 101.58. The index measures the greenback against a basket of six major currencies. Meanwhile, the benchmark 10-year US Treasury yield has recovered from last week’s low of 5.03% to stand near 5.13%.

Despite this, an unchanged Fed rate decision at the 27–28 October meeting remains the widespread expectation among traders. Policymakers appear reluctant to deliver consecutive increases after September’s 25-basis-point rise. According to the CME FedWatch Tool, markets assign a 15% probability to a rate increase this month, compared with an 89% probability of a rise in December.

With few US economic releases on the calendar, shifts in oil prices, the US Dollar and Treasury yields leave gold exposed, while the prospect of a hawkish Fed remains a substantial headwind.

Technical analysis: XAU/USD trades within a range beneath key daily SMAs

Since reaching a peak near $4,700 in late August, XAU/USD has continued to record lower highs and lower lows on the daily chart. Nevertheless, trading has largely remained confined to the $4,100–$4,200 range since the beginning of the month.

Some improvement in momentum has yet to lift the metal above its 50-day, 100-day and 200-day Simple Moving Averages (SMAs), leaving the upside constrained. The Relative Strength Index (RSI) is hovering in the low-40s, while the Moving Average Convergence Divergence (MACD) has turned positive above the zero line.

The first hurdle for a recovery is the psychological $4,200 level. Beyond that lie the 100-day SMA at $4,235 and the 50-day SMA at $4,321. Further gains would encounter horizontal resistance at $4,400 before reaching the 200-day SMA at $4,517. Conversely, a sustained move beneath $4,100 could pave the way for a decline towards the $4,000-$3,950 support area.

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