How are Fed hike bets driving gold back below $3,950 ahead of US midterm elections?

Gold edges down as expectations of Fed rate hikes and a recovery in US bond yields offer the USD some support.
USD gains remain limited by hopes of diplomacy with Iran, while traders hold back ahead of the US elections.
Bullion could find a further catalyst in Tuesday’s US JOLTS Job Openings release.

Renewed selling pressure pushes Gold (XAU/USD) back below $3,950 in Tuesday’s Asian session as the US Dollar (USD) edges higher. The decline reverses some of the previous day’s recovery from the one-year low recorded last week. Supporting the USD, Monday’s data showed a 10th consecutive month of expansion in US manufacturing activity in October. The Institute for Supply Management's (ISM) Manufacturing PMI climbed from 54.5 in the previous month to 55.5 in October, beating consensus estimates. Together with expectations of a hawkish US Federal Reserve (Fed) and a rebound in US bond yields, the figures help the USD extend its overnight recovery from near the late October swing low.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Caution ahead of the US midterm elections is nevertheless limiting the USD’s advance, with traders broadly reluctant to take positions before the vote determines control of Congress. Prediction markets heavily favour the Democrats securing 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. Prospects of a diplomatic settlement to end the US-Iran war may also discourage USD bulls from taking aggressive positions. On Monday, US President Donald Trump said Iran wanted a deal to end the war and that an agreement was possible. Iranian Foreign Minister Abbas Araqchi also described consultations through mediators as very intensive.

Despite those diplomatic efforts, several days of talks between Iranian officials and Qatari mediators produced no breakthrough. Tehran had put forward revised proposals to reopen the strategic Strait of Hormuz for two days, conditional on the US meeting a set of requirements. At the same time, renewed escalation between Russia and Ukraine keeps the geopolitical risk premium firmly in place. This should support the USD, indicating that gold’s path of least resistance is still lower. For a fresh trading catalyst, attention will turn to US JOLTS Job Openings data during the North American session. The main focus, however, remains Friday’s release of the key US monthly employment figures, widely known as the Nonfarm Payrolls (NFP) report.

What Does the XAU/USD 4-hour Chart Indicate?

Can Gold Ease the Technical Downside Pressure?

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

For bearish traders, Friday’s swing low near $3,870 now marks a potential demand zone. A break below it should clear the way for the established downtrend to extend. Any move higher faces immediate resistance at the 100-period EMA, currently at $4,053. Only a sustained move above that level would ease downward pressure and create scope for a more constructive recovery.

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

Fed: Key Questions Answered

How Does the Federal Reserve’s Role Affect the US Dollar?

The Federal Reserve (Fed) sets US monetary policy with a dual mandate of maintaining price stability and promoting full employment. Changes to interest rates are its main means of pursuing these objectives. If prices climb too rapidly and inflation exceeds the Fed’s 2% target, the central bank increases interest rates. By raising borrowing costs across the economy, this makes the US more appealing to international investors seeking a place to invest their funds, strengthening the US Dollar (USD). Conversely, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut interest rates to stimulate borrowing. Such a move puts pressure on the Greenback.

How Frequently Does the Fed Meet to Decide Monetary Policy?

At eight policy meetings each year, the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC) reviews economic conditions and decides on monetary policy. Twelve Fed officials participate in the FOMC: all seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and four of the other eleven regional Reserve Bank presidents. These four serve rotating one-year terms.

How Does Quantitative Easing (QE) Work, and What Does It Mean for USD?

When faced with extreme circumstances, the Federal Reserve may turn to Quantitative Easing (QE), a policy that substantially boosts the supply of credit within a stalled financial system. This unconventional measure is deployed during crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed’s preferred policy tool. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result.

How Does Quantitative Tightening (QT) Work, and What Does It Mean for the US Dollar?

Reversing QE, Quantitative tightening (QT) involves the Federal Reserve halting bond purchases from financial institutions. It also refrains from using principal repayments on maturing bonds in its portfolio to buy new bonds. This process generally supports the value of the US Dollar.