Gold bears await $4,100 break amid oil-driven Fed hike bets and USD uptick

Gold remains depressed for the fourth straight day amid a combination of negative factors.
Oil-driven inflation fears lift December rate hike bets and weigh on the non-yielding bullion.
Iran diplomacy hopes act as a headwind for the USD, limiting losses for the precious metal.

Gold (XAU/USD) hits a fresh weekly low during the Asian session on Wednesday, with bears still awaiting a sustained break and acceptance below the $4,100 mark before positioning for further losses. Inflation risks stemming from volatile oil prices underpin prospects for further policy tightening by the US Federal Reserve (Fed). Furthermore, a modest US Dollar (USD) recovery from a nearly three-week low, touched on Tuesday, is seen weighing on the bullion.

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

Crude oil prices staged a dramatic intraday turnaround from an over one-month peak on Tuesday amid renewed hopes for US-Iran peace talks. In fact, an unconfirmed report said that Qatar and Pakistan had offered a middle-ground plan to the US and Iran that met the demands of both sides. However, Bloomberg later reported that a diplomat involved in US-Iran negotiations disputed news suggesting that a deal was close. Moreover, state media said Iranian Parliament Speaker Mohammad Bagher Ghalibaf told Pakistan’s Army Chief, Asim Munir, that the US could not earn Iran’s trust without meeting previously declared conditions, including the cessation of all hostilities and the unfreezing of the country’s assets. This, in turn, tempered expectations of an imminent breakthrough.

Adding to this, Iran’s First Vice President said the country had no choice but to exercise sovereignty over the Strait of Hormuz, exacerbating worries over crude supply disruptions and assisting oil prices to rebound swiftly from the weekly low. This comes on top of hot US inflation figures, released last week, and reaffirms market bets for an imminent Fed rate hike. According to the CME Group's FedWatch Tool, traders are currently pricing in over a 90% chance that the US central bank will raise borrowing costs again in December. Furthermore, the uncertainty surrounding the Middle East crisis offers some support to the safe-haven Greenback, which turns out to be another factor exerting downward pressure on the Gold price for the fourth day in a row and backs the case for deeper losses.

Investors, however, might refrain from placing aggressive directional bets and opt to wait for more cues about the Fed's policy path. Hence, the focus will remain glued to the outcome of a two-day FOMC policy meeting on October 28 and the US Personal Consumption Expenditures (PCE) Price Index – the Fed's preferred inflation gauge due for release on October 29. Apart from this, next week's monetary policy updates from other major central banks – the Reserve Bank of New Zealand (RBNZ), the Bank of Canada (BoC), the European Central Bank (ECB) and the Bank of Japan (BoJ) – should provide some meaningful impetus to the non-yielding Gold. Nevertheless, the broader fundamental backdrop favors XAU/USD bears and suggests that the path of least resistance remains to the downside.

XAU/USD 4-hour chart

Technical Analysis

The overnight failed attempt to clear the 100-period Exponential Moving Average (EMA) on the 4-hour chart and the subsequent slide validate the negative outlook. Moreover, the Moving Average Convergence Divergence (MACD) remains in negative territory with its latest reading at -4.65, while the Relative Strength Index (RSI) sits at 39.16, reinforcing a weak momentum backdrop without yet signaling oversold conditions. Weakness below the $4,100 mark would reaffirm the bearish bias and expose the monthly swing low, around the $4,066 area.

Some follow-through selling would make the Gold price vulnerable to accelerating the downfall further toward the $4,000 psychological mark en route to the year-to-date low, around the $3,943-$3,942 region, touched in June. On the topside, the 100-period EMA around $4,175 might continue to act as an immediate strong resistance. Sustained strength above this barrier would be needed to ease the current bearish tone and open the way for a stronger recovery phase.

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

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.