Below $4,000: Gold’s weekly sell-off intensifies as Oil surges before Fed

• Gold retreats under $4,000, taking its weekly decline to nearly 3.90%.
• $100 breached by WTI as Middle East fighting escalates.
• 78% probability of a December Fed hike as FOMC and PCE data approach.

Gold (XAU/USD) is down nearly 0.60% on Friday. The metal remains on course for a weekly loss as rising energy costs increase the likelihood that major central banks could tighten monetary policy to curb inflation. At the time of writing, XAU/US trades near $4,000, having touched a three-month low of $3,975.

Nearly 4% weekly fall in XAU/USD as energy surge fuels global inflation risks

Escalating conflict in the Middle East has left bullion on track for a weekly decline of almost 3.90%. According to newswire reports, the US and Israel are preparing to attack Iran after the US midterm elections. The Islamic Revolutionary Guard Corps (IRGC) has been attacking vessels passing through “illegal routes” in the Strait of Hormuz. Exchanges of fire between the Houthis and Saudi Arabia have further dampened sentiment across financial markets.

US economic releases sent conflicting signals: consumer confidence weakened, but business activity continued to expand.

At 48 in October, the University of Michigan Consumer Sentiment Index reached a five-month low, down from 48.1. Higher energy costs and expectations of higher-for-longer Federal Reserve (Fed) rates drove the decline. Consumers’ inflation expectations were steady compared with the previous report but remained above the Fed’s 2% target. They anticipate inflation of 4.7% over the next 12 months and 3.5% over a 5-year horizon.

S&P Global’s preliminary US Services and Manufacturing Purchasing Managers’ Index (PMI) releases showed manufacturing strengthening to 56 in October from 55.9. Services activity, by contrast, eased to 57.9 from 58.8, in line with analysts’ expectations.

Geopolitical tensions have also supported Oil, lifting US crude benchmark West Texas Intermediate (WTI) by over 4% and taking it back above $100. Expectations of persistently elevated energy prices consequently raise the probability of a Federal Reserve rate increase to return inflation to its 2% target.

Money markets have nevertheless ruled out a rate increase at next week’s Fed meeting, despite these pressures and last week’s exceptionally strong consumer and producer inflation readings. For December, however, the probability stands at 78%, according to Prime Terminal.

The Fed meeting on Tuesday and Wednesday leads next week’s US economic calendar. Thursday then brings the core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure.

$4,000 breached: XAU/USD technical analysis points to $3,900 next

After sellers drove Gold to $3,975, its lowest level in three months, the metal is trading around $4,000. Buyers are nevertheless resisting the selling pressure and pushing bullion towards $4,000.

Bears retain the advantage in the contest with bulls. Successive lower highs and lower lows continue to define the market structure. Momentum also points to further losses, with the RSI (14) approaching a test of oversold territory.

If the decline continues, XAU/USD faces initial support at the session low of $3,975. Further down lie the 17 July low of $3,959 and the year-to-date (YTD) trough of $3,941.

A recovery requires bulls to retake $4,10, bringing $4,200 into view. A break above that level would shift attention to the 100-day Simple Moving Average (SMA) at $4,224, followed by the 50-day SMA at $4,302 and then $4,500.