Why Is Gold Flat Below $4,150 as Traders Weigh the Fed Rate Path Amid Middle East Risk?

• Gold trades steadily around $4,125 as Thursday’s early Asian session gets under way.
• Markets assign roughly an 84% chance to the Fed leaving rates unchanged in October.
• Gold could face pressure as intensifying Middle East tensions push oil prices higher.

Gold (XAU/USD) is trading steadily near $4,125 in early Asian dealings on Thursday, after fluctuating as traders weigh the interest-rate outlook. Ongoing tensions in the Middle East remain the backdrop to their assessment of the Federal Reserve’s (Fed) policy path.

Markets now assign an 84% probability to unchanged rates at the October meeting, according to the CME FedWatch tool. Last week, Fed Chairman Kevin Warsh refrained from indicating how this month’s policy meeting would conclude, while saying that inflation exceeding expectations had not altered his assessment of the US economy.

Although investors widely anticipate no rate change next week, another increase at the December meeting remains priced in, leaving expectations tilted towards monetary tightening. Such an outlook could put pressure on gold. Since the metal offers no interest income, higher rates generally reduce its appeal relative to yield-bearing assets.

High energy costs also raise the likelihood of the US central bank having to adjust monetary policy further to curb price pressures.

Traders remain uneasy as supply risks across the Middle East intensify. On Wednesday, Iran’s Foreign Minister Abbas Araghchi said that “while ‌‌Iran is firmly committed to seeking a dignified peaceful resolution to the conflict, we are also fully prepared to defend ourselves.” Separately, Iranian President Masoud Pezeshkian said the US could not expect talks with Iran while subjecting it to a blockade and threats.

How is risk appetite shifting as unrest in France pressures equities and the Dollar strengthens?

A modest return towards the Dollar accompanied stabilising sentiment towards US assets, according to analysts at Commerzbank, who describe a marked divergence between markets. They observe that "European equities declined amid political unrest in France, while US Treasury yields rose as the equity recovery reduced safe-haven demand." Against that backdrop, they note that "the USD was slightly firmer," reflecting the limited shift back towards the currency.

Weaker commodity prices also feature in Commerzbank’s assessment: the bank reports that "Brent crude oil prices fell 0.3% to USD109.55" and that "Gold fell 0.6% to USD4,141," illustrating the pressure on traditional hedges from rising US yields and diminished safe-haven demand.

How does Warsh balance crisis-related caution with optimism on investment and AI?

A moderately positive message from Fed Chair Warsh produced an FXS Speechtracker score of 5.6/10, marginally below the historical average of 6.1/10 and pointing to only limited fresh information for markets. His acknowledgement of being “over-scarred” by the Global Financial Crisis highlights an enduring preference for caution on financial stability. At the same time, he emphasises structural growth, a surge in investment and confidence in achieving price stability, without committing in advance to decisions in October or December. By presenting AI as both a near-term driver of demand and a means of improving data and monetary policy, Warsh adopts a forward-looking approach that could eventually support the Dollar if productivity and growth expectations strengthen.

Despite the slightly weaker FXS Speechtracker score, perceptions of the policy stance were largely unaffected by the speech. The FXS Fed Sentiment Index recorded a change of 0.00 points, remaining at a hawkish 127.51. With the index elevated but unchanged on the day, markets appear to continue viewing the Fed as firmly hawkish, balancing Warsh’s crisis-related caution against his optimism about investment and AI-led growth.

Technical Analysis: Can Gold overcome the 100-day SMA ceiling?

A bearish near-term bias persists on the daily XAU/USD chart, as spot prices trade beneath both the 20-period Bollinger simple moving average and the 100-day moving average. However, prices remain above the lower Bollinger Band, pointing to near-term consolidation rather than an outright breakdown. At 42.60, the Relative Strength Index occupies neutral-to-weak territory, indicating that downward momentum remains in place without becoming excessive.

Any recovery would first encounter resistance at the Bollinger midline around $4,160, before the 100-day moving average at $4,230. The upper Bollinger Band at $4,255 presents a firmer barrier should buyers attempt a rebound. Immediate downside support lies near $4,070 at the lower Bollinger Band. A sustained breach of that level would create scope for a deeper correction; remaining above it would instead leave XAU/USD bearish but confined to a range.

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