Gold approaches $4,300 as Fed hike bets boost USD to fresh high since late July
- Gold attracts fresh sellers on Wednesday as the Fed’s hawkish stance continues to underpin the USD.
- US bond yields remain depressed amid easing inflation fears and could help limit losses for the bullion.
- Traders now look to flash global PMIs for some impetus ahead of the Trump-Xi meeting on Thursday.
Gold (XAU/USD) extends its steady intraday slide through the first half of the European session on Wednesday, reversing a part of the previous day's recovery from sub-$4,300 levels. US Dollar (USD) buying remains unabated on the back of the Federal Reserve's (Fed) hawkish outlook, which is seen as a key factor driving flows away from the non-yielding yellow metal.
The US central bank raised interest rates for the first time in over three years at the conclusion of the September policy meeting and signaled one more hike this year. Moreover, St. Louis Fed President Alberto Musalem and Chicago Fed President Austan Goolsbee explicitly backed the case for further policy tightening as inflation risks remain elevated. Adding to this, Boston Fed President Susan Collins and Richmond Fed President Tom Barkin both left the door open on future hikes to rein in inflation. According to the CME Group's FedWatch Tool, traders see a 90% chance of a rate hike in December. This, along with persistent geopolitical uncertainties, continues to act as a tailwind for the safe-haven Greenback.
In the latest developments surrounding the Middle East crisis, US President Donald Trump told the United Nations General Assembly (UNGA) that he faces a big decision on whether to make a deal with Iran or "annihilate" the Islamic Republic if the conflict went unresolved. Furthermore, tighter US sanctions intended to cripple Iranian aviation come into force on Wednesday. Meanwhile, Iranian Foreign Minister Abbas Araghchi met with US Special Envoy Steve Witkoff to restate Tehran's conditions for reopening the Strait of Hormuz. Trump told reporters the discussions went well, but did not offer further details. This keeps the geopolitical risk premium in play and favors USD bulls, weighing on the Gold price.
That said, US bond yields remain depressed below multi-year highs as the recent decline in crude oil prices helps cool fears of runaway inflation. This, in turn, keeps the precious metal confined to the weekly range. Traders now look to the release of flash global PMIs to gauge the health of major developed economies. Apart from this, speeches from influential FOMC members, along with incoming geopolitical headlines, will drive USD demand and produce short-term opportunities around the Gold price. The focus, however, will remain glued to a crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping on Thursday, which should provide some meaningful impetus to the Gold price.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair holds a capped tone below the 100-period Exponential Moving Average (EMA) at $4,369. The commodity, however, holds just above the 50.0% retracement of the $3,934.91–$4,694.41 leg. Moreover, momentum indicators are mixed, as the Relative Strength Index (RSI) at 47.86 has eased toward neutral and the Moving Average Convergence Divergence (MACD) shows a negative reading at -9.80, hinting at waning bullish pressure. This keeps the near-term bias tilted to the downside while the Gold remains under the EMA.
Meanwhile, immediate support is seen at the 50.0% retracement near $4,314, followed by the deeper Fibonacci levels at $4,225 (61.8%) and $4,097 (78.6%), before the structural floor at the prior swing low of $3,934. On the topside, initial resistance emerges at the 100-period EMA at $4,369, ahead of the 38.2% retracement at $4,404. A daily close above these levels would be needed to alleviate bearish pressure and open the way toward the higher resistance band at $4,515 and, ultimately, the cycle high area around $4,694.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
