Below $4,000: Gold retreats as higher oil prices bolster Fed rate-hike expectations

• Gold trades around $3,995. Prices remain under pressure in early Asian trading on Monday.
• As energy costs climbed, inflation worries intensified and expectations of a US rate increase strengthened.
• A Fed hold this week carries a 90.6% probability in traders’ pricing, compared with a 79.4% chance of a December rate increase.

Gold (XAU/USD) falls towards $3,995. In Monday’s early Asian trading, the metal remains under selling pressure close to its lowest level since July. Ahead of the Federal Reserve’s (Fed) next policy meeting, elevated energy costs have heightened inflation worries.

Following Houthi attacks in Saudi Arabia, WTI crude oil climbed to its highest level in more than five months as fears grew over further disruption to energy supplies.

Over the weekend, US President Donald Trump said it was “getting to be decision time” on whether to reach a deal with Tehran or resume attacks. His comments came as Iranian and Houthi threats against Americans in the Middle East continued to increase, leaving uncertainty across the region elevated.

Ryan McKay, senior commodity strategist at TD Securities, said: “Gold is being weighed down by concerns around oil prices, rates and the Fed outlook,” adding: “At the margin, flows have also been negative, with heavy CTA selling this week adding to the pressure.”

Rising oil prices have encouraged bets on a further rate increase in December, although traders assign only a small probability to a quarter-point rise at next week’s policy meeting. Because gold pays no interest, higher rates generally reduce its appeal relative to yield-bearing assets.

According to the CME FedWatch tool, the probability of a December Fed rate increase now stands at 79.4%. Markets assign a 90.6% chance to the US central bank leaving rates unchanged at its forthcoming meeting this month.

Gold falls as surging oil renews Fed tightening concerns

Despite a global technology sell-off unsettling broader markets, OCBC strategists say gold "came under renewed selling pressure overnight, falling more than 2.5%,". They identify an additional drag on the metal: "Brent’s sharp rise amid renewed Middle East supply concerns added to inflation worries and expectations that the Fed may need to keep rates restrictive for longer,". For OCBC, the striking feature was that "gold continued to weaken even as US Treasury yields fell sharply,". In its assessment, this underlines that "neither lower yields nor heightened geopolitical uncertainty has been sufficient to support gold, suggesting that near-term sentiment remains fragile."

Explaining its stance against this backdrop, OCBC says "we remained cautious in the near term, particularly as gold has struggled to respond positively to the recent decline in yields." The bank sees potential support ahead, arguing that "an easing in oil prices and further decline in real yields could help gold stabilise,". However, its strategists stress that they "would want to see a better price response before turning more constructive in the near-term."

5.6/10 Warsh score: Investment surge and AI risks in focus

A 5.6/10 reading on the FXS Speechtracker places Fed Chair Warsh’s remarks modestly below the historical average of 6.1/10. The score indicates a slightly less impactful tone than the established baseline, although the policy message remained broadly consistent. Warsh acknowledged being “over-scarred” by the Global Financial Crisis, highlighted an investment surge supported by “good policies”, and cautioned about AI’s uncertain effect on employment. Together, these remarks reflect a risk-aware approach, balancing optimism about structural growth against sensitivity to downside tail risks. By declining to prejudge the October and December meetings, Warsh left the policy path deliberately unclear, constraining immediate repricing of Dollar expectations.

With a move of 0.00 points, the FXS Fed Sentiment Index held at an elevated 127.51. The unchanged reading indicates that perceptions of the policy stance remained firmly hawkish after the speech. Alongside the slightly softer FXS Speechtracker score, this suggests markets detected no meaningful change in the Fed’s reaction function. Strong commitment to price stability and continued vigilance over financial stability risks underpin support for the Dollar.

Technical Analysis: 100-day SMA caps Gold’s outlook

Below both the 100-day simple moving average (SMA) and the 20-day Bollinger middle band, spot XAU/USD maintains a bearish near-term bias on the daily chart. Trading beneath the lower Bollinger band also highlights downward pressure following the recent break outside the envelope. Meanwhile, the Relative Strength Index (14) stands at 34.13, just above oversold territory. Selling momentum therefore remains dominant, though conditions are approaching stretched levels.

The lower Bollinger band, near $4,015, provides the first upside resistance, ahead of the Bollinger 20-day SMA at $4,130. Further up, a wider supply zone spans the 100-day SMA at $4,220 and the upper Bollinger band at $4,240. Gold would need to regain that zone to soften the prevailing bearish tone and create scope for a more sustained recovery.

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