Below $4,100: gold falls to one-week low as Fed hike bets outweigh weak USD

Stronger expectations of a December Fed rate increase bring renewed selling in Gold on Thursday.
Lower US bond yields weigh on USD, but the commodity gains no support from the currency's weakness.
Geopolitical uncertainty supports USD bulls and strengthens the argument for additional XAU/USD losses.

$4,100 is under renewed pressure from Gold bears. Fresh selling sends Gold (XAU/USD) to a one-week low in Thursday's Asian session, with sellers seeking to extend the decline further below that level.

Around a 90% probability of a December rate increase is priced in by traders, according to CME Group's FedWatch Tool. Last week's US inflation data reinforced expectations that the Federal Reserve (Fed) would raise interest rates imminently. Inflation concerns linked to volatile oil prices also support the prospect of additional Fed tightening. This is seen as a key reason for outflows from non-yielding Gold.

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

Near the three-week low reached on Tuesday, the US Dollar (USD) nevertheless draws little buying interest. Recent comments from Fed officials indicated no urgency to increase rates at the forthcoming October 27–28 meeting. US bond yields are also extending their retreat from multi-year highs, leaving USD bulls under pressure. The possibility of a further escalation in Middle East tensions, however, might continue to provide some support for the safe-haven Greenback.

On the Middle East crisis, Iran's Foreign Minister Abbas Araghchi said the country was ready for diplomacy but also prepared to defend itself. He added that there was little basis for expecting progress now, given the US's lack of willingness to reach an understanding. In a separate report, The New York Times said the US and Israel had prepared plans for a brief but intense military campaign against Iran following the US midterm elections.

With the geopolitical risk premium still in place, USD bulls retain support and gold appears more likely to move lower. Confirmation of a break below the trading range would nevertheless require follow-through selling before positioning for additional declines. Thursday's US Weekly Initial Jobless Claims release is the next potential catalyst, followed by the global flash PMIs on Friday. Next week's FOMC meeting remains the main focus.

4-hour chart: XAU/USD

Technical outlook

Below the 200-period Simple Moving Average (SMA) on the 4-hour chart, XAU/USD retains a bearish near-term bias. The Moving Average Convergence Divergence (MACD) remains negative, with its line beneath the signal line, while the Relative Strength Index (RSI) is around the mid-30s. Taken together, these momentum readings point to continuing downside pressure despite conditions nearing oversold territory.

The $4,075-$4,065 zone, which marks the monthly swing low, could provide support if the decline continues. A further wave of selling would be viewed as a fresh bearish trigger, leaving the Gold price exposed to a faster fall towards intermediate support at $4,030-$4,025, followed by the psychological $4,000 level.

For any recovery, the $4,140 region could present the first barrier. A move above it could allow the precious metal another attempt at $4,200. Sustained gains beyond that level could carry the Gold price towards the 200-period SMA at $4,232. Clearing that average would reduce the prevailing bearish pressure and create scope for a more substantial corrective rebound.

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

Fed questions answered

The Federal Reserve's role and its influence on the US Dollar

Price stability and full employment are the Federal Reserve's (Fed) two mandates. As the institution responsible for US monetary policy, it primarily pursues these objectives through interest rate adjustments. If prices rise too rapidly and inflation exceeds its 2% target, the Fed increases rates. Borrowing becomes more expensive across the economy, while the US becomes a more attractive destination for international investment. The result is a stronger US Dollar (USD). Conversely, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut rates to stimulate borrowing, putting pressure on the Greenback.

Eight meetings a year: the Fed's monetary policy schedule

Eight times a year, the Federal Reserve (Fed) convenes policy meetings at which the Federal Open Market Committee (FOMC) reviews economic conditions and decides monetary policy. Twelve Fed officials participate in the FOMC: all seven Board of Governors members, the Federal Reserve Bank of New York president, and four presidents from the other eleven regional Reserve Banks. Those four serve rotating one-year terms.

Quantitative Easing (QE): credit expansion and the impact on USD

When financial conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE) to substantially expand the flow of credit through a stalled financial system. This unconventional policy is deployed during crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed's preferred response. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result.

Quantitative Tightening (QT): reversing QE and supporting the US Dollar

To reverse QE through Quantitative tightening (QT), the Federal Reserve ceases bond purchases from financial institutions. It also stops reinvesting the principal repaid when bonds in its portfolio mature into new bond purchases. This generally supports the US Dollar's value.