Fed hike bets push gold back below $3,950 ahead of US midterm elections

• Fed rate rise expectations and a recovery in US bond yields underpin the USD, leaving gold edging lower.
• Prospects for diplomacy with Iran restrain the USD, while traders hold back ahead of the US elections.
• US JOLTS Job Openings figures due on Tuesday may offer a further catalyst for gold.

US manufacturing activity expanded for a 10th consecutive month in October, according to figures published on Monday. The Institute for Supply Management's (ISM) Manufacturing PMI climbed from 54.5 in the previous month to 55.5, exceeding consensus forecasts. Alongside expectations of a hawkish US Federal Reserve (Fed) and a rebound in US bond yields, the data help the US Dollar (USD) extend its overnight recovery from near the late October swing low. Against this modest rise in the dollar, Gold (XAU/USD) faces renewed selling in Tuesday's Asian session, slipping below $3,950 again. The decline gives back some of the previous day's recovery from the one-year low reached last week.

Nevertheless, widespread caution ahead of the US midterm elections, which will determine control of Congress, is limiting the USD's gains. Prediction markets heavily favour the Democrats taking both the House of Representatives and the Senate. A Republican sweep, by contrast, would represent a bigger surprise for markets and could push US Treasury yields and the US Dollar (USD) higher. Hopes of a diplomatic settlement to end the US-Iran war may also discourage aggressive positioning by dollar bulls. US President Donald Trump said on Monday that Iran wants a deal to end the war and that an agreement could be reached. Iranian Foreign Minister Abbas Araqchi also described consultations via mediators as very intensive.

Despite several days of talks between Iranian officials and Qatari mediators, no breakthrough emerged. Tehran had revised its proposals to reopen the strategic Strait of Hormuz for two days, conditional on the US meeting a set of requirements. A renewed escalation between Russia and Ukraine is also keeping the geopolitical risk premium firmly in place. That should support the USD and suggests that gold's path of least resistance is still lower. Later in the North American session, traders will look to the US JOLTS Job Openings release for a fresh impetus. The main focus, however, remains Friday's key monthly US employment figures, widely known as the Nonfarm Payrolls (NFP) report.

XAU/USD on the 4-hour chart

Technical Outlook Remains Bearish

Trading below the 100-period Exponential Moving Average (EMA) on the 4-hour chart leaves XAU/USD with a bearish short-term bias. The failure overnight near the late October swing low, followed by another decline, reinforces that outlook even though the Moving Average Convergence Divergence (MACD) is mildly positive. With the Relative Strength Index (RSI) close to 40.0, the recovery from recently oversold conditions appears tentative.

Friday's swing low near $3,870 is now the area bearish traders would watch for potential demand. A break below it should clear the way for the established downtrend to extend. The 100-period EMA at $4,053 provides immediate resistance on the upside. Only a sustained move above that level would relieve downward pressure and allow a more constructive recovery to develop.

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