Gold Price Forecast: XAU/USD remains a sell-on-rise trade amid steeper Fed hike bets
- Gold looks south following hot US inflation and hawkish Fed speak, bolstering hike bets.
- US Dollar sits at 19-month highs even as hopes for Iran and Ukraine peace talks linger.
- Gold settled Wednesday below the $4,000 level amid bearish RSI and a Bear Cross.
Gold fades its tepid recovery attempts at the $4,000 level early Thursday, as sellers refuse to budge amid rising expectations of a steeper interest rate hike by the US Federal Reserve (Fed) at its December monetary policy meeting.
Gold cracks $4,000 yet again
Hotter-than-expected US Consumer Price Index (CPI) data for October continue to spell doom for markets, particularly for the non-interest-bearing Gold, driving the benchmark 10-year US Treasury bond yields back to the 5% key level and the US Dollar (USD) above 103.00 against its major currency rivals.
On Tuesday, data showed that headline CPI increased 0.4% for the month, while core CPI, excluding volatile items like food and energy prices, rose 0.3% against the forecast for a 0.2% gain.
Recent commentary from Fed officials also suggests that inflation remains a major concern, and some policymakers advocated aggressive tightening to bring inflation back down to the central bank’s 2% target. Note that inflation has remained above the Fed’s goal for more than five years.
In light of this, markets are now pricing in a 10% chance of the Fed hiking rates by 50 basis points (bps) in December, while a rate increase is a done deal, the CME Group’s FedWatch Tool shows.
The increased hawkish sentiment around the Fed offset any hopes for US-Iran and Russia-Ukraine peace talks.
“Russian and Ukrainian negotiators agreed to a major prisoner exchange at two days of peace talks in Abu Dhabi that ended on Wednesday, although US mediators said differences remained on other major issues, including territory,” according to Reuters.
Meanwhile, US officials continue to downplay the need for further military strikes on Iran as diplomatic efforts remain in play.
Later in the day, the US Jobless Claims data will be closely scrutinized to gauge the resilience of labor market, necessary for interest rate expectations.
Fed policymakers’ speeches are next in focus as the technical setup on the day chart favors sellers.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $3,981.47, keeping a bearish near-term bias as price holds below the 21-, 50-, 100- and 200-day simple moving averages (SMA), which all cluster overhead and cap the upside.
The Relative Strength Index (14) near 43 remains below the midline yet above oversold territory, suggesting selling pressure dominates but lacks strong momentum for an immediate capitulation. Further, the 50-day SMA closed beneath the 100-day SMA on Monday, confirming a Bear Cross.
On the topside, initial resistance appears at the 21-day SMA around $4,049.60, followed by the 23.6% Fibonacci retracement at $4,065.07, with a more significant barrier emerging at the 50-day SMA near $4,167.77 and the 38.2% retracement at $4,186.41. Further up, the 100-day SMA at $4,200.19 and the 50.0% retracement at $4,284.49 reinforce a broader supply zone before higher Fibonacci levels and the 200-day SMA at $4,445.43. On the downside, immediate support is essentially the current area, with a more meaningful structural floor set by the Fibonacci cycle low anchor at $3,868.92, where buyers could attempt to stabilize the metal if the decline extends.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Dollar support underpinned by Fed independence and renewed safe-haven demand
Strategists at Rabobank argue that “diminished fears about political interference on the Fed is a supportive factor for the USD,” noting that the strong bid for the Dollar at the start of the Gulf war “undermined last year’s claims that the USD’s had lost at least part of its safe haven value.” In their view, “the USD’s safe haven appeal is linked to its embedded position in global payments systems, which could take decades to shake,” and these “reduced concerns over the credibility of the greenback should allow it more opportunity to benefit from the US’s robust economic growth performance.” Rabobank also highlights that “the stresses that the EUR could face in the coming months could support a preference for long USD positions,” reinforcing the bank’s constructive stance on the Dollar in the current environment.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
