Gold retreats near $4,000 as robust US GDP bolsters expectations of a Fed rate hike

• Gold retreats more than 1% to $4,019, ending a run of three daily gains.
• US GDP growth quickens to 3.4% during Q3, as Core PCE inflation climbs to 3.1% for September.
• Despite recent repricing, the probability of a December Fed rate rise remains high at 81%.

A series of US economic releases strengthened the case for a further Federal Reserve (Fed) rate rise at its 9 December meeting, sending Gold (XAU/USD) more than 1% lower on Thursday. Having touched a high of $4,069, XAU/USD is trading at $4,019 at the time of writing.

XAU/USD slides as robust growth and high inflation bolster expectations of December tightening

Following Wednesday’s Federal Reserve decision to leave interest rates on hold and the absence of forward guidance from Fed Chair Kevin Warsh, the Greenback continues to weaken. The US Dollar Index (DXY), which measures the currency against six peers, is down 0.18% at 101.96.

Money markets initially assigned an 84% probability to a 25-basis-point rate rise after the decision. According to Prime Terminal, that probability has since eased to 81%.

Before the US data release reversed the advance and brought prices back to current levels, Gold had climbed to $4,035. Q3 Gross Domestic Product (GDP) expanded by 3.4% YoY, exceeding the 3.2% forecast and accelerating from the previous quarter’s 2.2%. Meanwhile, the Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure, increased to 3.1% YoY, in line with expectations. The reading suggests further work is needed for the Fed to fulfil its price stability mandate.

Alongside the growth and inflation figures, labour market data pointed to continued resilience. Initial Jobless Claims fell to 194K in the week ending 24 October from 195K, coming in below the forecast of 199K.

An attempt by US Vice President JD Vance to restart peace talks, through a letter to Mohsen Rezaei, head of Iran’s Supreme National Security Council, helped ease tensions in the Middle East. Although Oil prices edged down, expectations of higher interest rates have prevented bullion from recovering.

Having touched a low of 4.949%, the US 10-year Treasury yield is unchanged at 4.999%. Together with uncertainty over the outcome of the US midterm elections on 3 November, this is keeping Gold prices steady.

The coming week’s economic calendar includes the ISM Manufacturing and Services PMI, Factory Orders, the JOLTS survey and Initial Jobless Claims, alongside October’s Nonfarm Payrolls figures.

XAU/USD technical outlook: Gold retreats towards $4,000 as sellers target YTD low below $3,970

Sellers remain in control, with XAU/USD slipping beneath Wednesday’s daily low of $4,025. A break below $4,000 would leave Gold poised to test last week’s $3,975 low. With the Relative Strength Index (RSI) drifting towards oversold territory, momentum points to further losses.

A move above $4,100, by contrast, would allow buyers to regain some influence. The next level would then be $4,200, ahead of the 100-day and 50-day Simple Moving Averages (SMAs), which stand at $4,217 and $4,269 respectively.