Weak USD lifts gold above $4,000 from three-month low; FOMC remains in focus

• After falling to a three-month low over two days, gold recovers some ground.
• Lower US bond yields restrain the USD’s attempted rebound, providing support for bullion.
• With central bank decisions and key US figures due this week, XAU/USD buyers appear wary.

The $4,000 psychological level is back below Gold (XAU/USD) as buying interest emerges in the Asian session at the start of the week, supported by broad US Dollar (USD) weakness. A modest retreat in crude oil prices followed US President Donald Trump’s decision to rule out immediate military action against Iran. Federal Reserve (Fed) officials have also indicated that they see no urgent need for an immediate interest rate rise. Meanwhile, a sharp recent decline in US bond yields from multi-year highs is restricting the USD’s efforts to recover from a three-week low, lending some support to gold. For now, the metal appears to have ended the two-day decline that took it to a three-month low on Friday, although scope for further gains looks limited.

S&P Global’s flash US Manufacturing Purchasing Managers’ Index (PMI) reached a 53-month high of 56 in October, up on the month and above the forecast of 55.6. At 57.9, the Services PMI met expectations but was lower than September’s 58.8. The Composite Output Index also eased, to 57.6 from the previous month’s five-year high of 58.4. Within the report, the output price index rose to 59.8, a level last seen in August 2022. This suggests inflation could rise further and stay persistently high over the coming months. Alongside concerns about inflation arising from elevated energy prices, the figures reinforce the prospect of further Fed tightening, potentially constraining any substantial advance in non-yielding gold.

Supply worries linked to attacks in Saudi Arabia and tensions involving Iran had, in fact, pushed crude oil to its highest price since 16 September. In the latest development, Yemen’s Iran-backed Houthis pledged on Sunday to continue attacks on Saudi Arabia’s King Khalid Airport in Riyadh. With US-Iran talks also at a standstill, a geopolitical risk premium remains firmly in place. That could cushion the safe-haven US dollar against deeper losses, suggesting caution is warranted before taking aggressively bullish positions in gold. Traders may also prefer to stand aside before this week’s major central bank events and important US economic releases. Thursday brings the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index.

Wednesday’s conclusion of the two-day FOMC policy meeting will nevertheless command the most attention. With no updated economic projections due, market participants will examine the accompanying rate statement and remarks from Fed Chair Kevin Warsh at the subsequent press conference for guidance on the policy outlook. Those signals will shape near-term movements in the USD. Rate decisions from the Reserve Bank of New Zealand (RBNZ), the European Central Bank (ECB) and the Bank of Japan (BoJ) are also due this week, potentially adding to volatility in gold prices. Taken together, however, the fundamental factors outlined above suggest it is too early to confidently conclude that XAU/USD has established a bottom.

XAU/USD trades on the 4-hour chart

Technical Outlook Remains Bearish

Last week’s break below short-term trading-range support around $4,100 leaves gold’s near-term outlook bearish. Repeated recent attempts to clear the 100-period Exponential Moving Average (EMA) have also failed, reinforcing that negative assessment. The recovery attempt therefore appears to be a corrective move within a broader downward trend.

Further advances are consequently more likely to attract selling, with former support near $4,100 expected to cap the move as resistance. Beyond that, the next obstacle lies around the 100-period EMA at $4,135.95. Only a sustained break above that barrier would give XAU/USD a more constructive outlook and open the way for further gains towards $4,200.

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