Gold hammered down to monthly low as Fed hike bets offset weak USD and sliding bond yields
- Gold attracts fresh sellers on Thursday amid firming expectations for a December Fed rate hike.
- Falling US bond yields keep USD depressed, though it fails to lend any support to the commodity.
- Geopolitical risks favor USD bulls, backing the case for further depreciation for the XAU/USD pair.
Gold (XAU/USD) maintains its heavily offered tone heading into the European session on Thursday and currently trades near the monthly swing low, around the $4,070-$4,065 region, down over 1.50% for the day. Moreover, a bearish fundamental backdrop suggests the path of least resistance for the precious metal remains to the downside.
The latest US inflation figures, released last week, reaffirmed market bets for an imminent interest rate hike by the Federal Reserve (Fed). In fact, the CME Group's FedWatch Tool indicates that traders are pricing in around a 90% chance that the US central bank will raise borrowing costs in December. Furthermore, inflation fears stemming from volatile oil prices underpin prospects for further policy tightening by the Fed, which, in turn, is seen as a key factor driving flows away from the non-yielding Gold.
The US Dollar (USD), however, struggles to attract any meaningful buyers and remains close to a three-week low, touched on Tuesday, as Fed officials recently signaled that there is no urgency to raise interest rates at the upcoming October 27–28 meeting. Furthermore, US bond yields extend their retracement slide from multi-year highs and keep USD bulls on the back foot. That said, the risk of a further escalation of tensions in the Middle East might continue to lend some support to the safe-haven Greenback.
In the latest developments surrounding the Middle East crisis, Iran’s Foreign Minister, Abbas Araghchi, stated that the country is prepared for diplomacy while also emphasizing its readiness to defend itself. Araghchi added that there was little reason to expect progress now as the US had shown no willingness to reach an understanding. Separately, The New York Times reported that the US and Israel have drawn up plans for a short but intense military campaign against Iran after the US midterm elections.
This keeps the geopolitical risk premium in play and favors USD bulls, validating the negative outlook for gold. Moreover, the XAU/USD pair now seems to have found acceptance below the $4,100 round figure, which further backs the case for an extension of the depreciating move. Traders now look to Thursday's release of the US Weekly Initial Jobless Claims data for some impetus ahead of the global flash PMIs on Friday, though the focus remains on the FOMC meeting next week.
XAU/USD 4-hour chart
Technical Analysis
The XAU/USD pair is keeping a bearish near-term tone below the 200-period Simple Moving Average (SMA) on the 4-hour chart. Moreover, the Moving Average Convergence Divergence (MACD) indicator remains in negative territory with the line below its signal, while the Relative Strength Index (RSI) hovers in the mid-30s. Momentum indicators together suggest persistent downside pressure even as conditions approach oversold territory.
Any further decline, however, could find some support near the $4,075-$4,065 region, or the monthly swing low. Some follow-through selling will be seen as a fresh trigger for bearish traders and make the Gold price vulnerable to accelerating the fall further towards the $4,030-$4,025 intermediate support en route to the $4,000 psychological mark.
On the flip side, the $4,140 area could act as an immediate hurdle, above which the precious metal could make a fresh attempt to conquer the $4,200 mark. A sustained strength beyond the said handle could lift the Gold price to the 200-period SMA at $4,232, which, if cleared, would ease the current bearish pressure and open the door to a more meaningful corrective bounce.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
