Gold slides below $3,900 as Fed hike bets counter softer USD ahead of US elections
- Gold drifts lower as Fed hike bets and rebounding US bond yields lend some support to the USD.
- Hope for Iran diplomacy caps the USD as traders remain on the sidelines ahead of the US elections.
- Tuesday’s release of the US JOLTS Job Openings could also provide some impetus to the bullion.
Gold (XAU/USD) slides below the $3,900 mark during the first half of the European session on Tuesday, eyeing its lowest level since October 2025, set last week amid expectations of further tightening by the US Federal Reserve (Fed). Data released on Monday showed that US manufacturing sector business activity expanded for the 10th consecutive month in October. The Institute for Supply Management's (ISM) Manufacturing PMI came in higher than consensus estimates and rose to 55.5 in October from 54.5 in the previous month. This reaffirmed hawkish Fed bets, which, along with a modest bounce in US bond yields, weigh heavily on the non-yielding yellow metal.
The US Dollar (USD), however, struggles to lure buyers as traders are demonstrating a widespread hesitancy ahead of US midterm elections that will decide control of Congress. Prediction markets strongly favor Democrats winning control of both the House of Representatives and the Senate. Meanwhile, a Republican sweep would be a larger market surprise, which could lift US Treasury yields and the US Dollar (USD). Moreover, hopes for a potential diplomatic resolution to end the US-Iran war might further hold back USD bulls from placing aggressive bets. In fact, US President Donald Trump said on Monday that Iran wants to make a deal to end the war and that such an agreement could happen. Moreover, Iranian Foreign Minister Abbas Araqchi said that consultations through mediators were very intensive.
However, several days of negotiations between Iranian officials and Qatari mediators failed to make a breakthrough despite Tehran's revised proposals to reopen the strategic Strait of Hormuz for two days, provided that the US fulfills a set of conditions. Moreover, a fresh escalation of tensions between Russia and Ukraine keeps the geopolitical risk premium firmly in play. This should act as a tailwind for the USD, suggesting that the path of least resistance for gold remains to the downside. On the economic data front, traders will take cues from the release of US JOLTS Job Openings data for some impetus later during the North American session. The focus, however, will remain on the key US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report, due on Friday.
XAU/USD 4-hour chart
Technical Analysis
The XAU/USD pair maintains a bearish near-term bias beneath the 100-period Exponential Moving Average (EMA) on the 4-hour chart. Adding to this, the overnight failure near the late October swing low and the subsequent slide validates the negative outlook despite a mildly positive Moving Average Convergence Divergence (MACD). Meanwhile, the Relative Strength Index (RSI) near 40.0 hints at only tentative recovery from recently oversold conditions.
Bearish traders, however, would now look to Friday's swing low, around the $3,870 area for potential demand zones, which, if broken, should pave the way for an extension of the well-established downward trajectory. On the topside, immediate resistance is defined by the 100-period EMA at $4,053. A sustained break above this level would be needed to ease downside pressure and open the way for a more constructive recovery phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
