Gold rebounds from three-month low; not out of the woods yet amid Fed hike bets
- Gold attracts some follow-through selling amid a combination of negative factors.
- December Fed rate hike bets and a modest USD recovery weigh on the commodity.
- Market attention now shifts to the crucial FOMC meeting, starting next Tuesday.
Gold (XAU/USD) rebounds slightly after dropping to a fresh three-month low, below the $4,000 psychological mark during the Asian session on Friday, though the upside seems limited. The Federal Reserve (Fed) recently signaled that there is no urgency to raise interest rates. Traders, however, are still pricing in around an 80% chance that the US central bank will raise borrowing costs again at its December policy meeting. Moreover, oil-driven inflation fears underpin prospects for further Fed tightening, which turns out to be a key factor driving flows away from the non-yielding bullion.
In fact, crude oil prices sit near a one-month peak, touched on Tuesday, due to supply concerns stemming from escalating conflict in the Middle East. The fighting between Saudi Arabia and Yemen's Iran-backed Houthi movement has escalated sharply, leading to Houthi drone and missile strikes on the kingdom's airports and critical energy infrastructure. In further developments, Iran’s Islamic Revolutionary Guard Corps (IRGC) said that renewed US attacks could prompt Tehran to invade neighbouring countries and hit bases used in US military operations as part of its new offensive strategy.
This comes on top of a report that the US and Israel have drawn up plans for a short but intense military campaign against Iran after the US midterm elections and keeps the geopolitical risk premium in play. Moreover, hawkish Fed expectations help the safe-haven USD to recover slightly from a three-week low, which exerts additional downward pressure on the Gold price. Traders, however, might refrain from placing fresh directional bets and opt to wait for more cues about the Fed's policy path. Hence, the focus will remain on next week's highly anticipated two-day FOMC meeting.
The Fed will announce its decision on Wednesday and is widely expected to leave interest rates unchanged. In the absence of updated economic projections, investors will scrutinize the accompanying policy statement and Fed Chair Kevin Warsh's comments during the post-meeting press conference. This will be followed by the release of the Advance US Q3 GDP report and the US Personal Consumption Expenditures (PCE) Price Index – the Fed's preferred inflation gauge – next Thursday, which will play a key role in influencing the USD and provide a fresh impetus to the Gold price.
XAU/USD daily chart
Technical Analysis
The overnight breakdown below a short-term trading range support and a sustained close below the $4,100 mark was seen as a key trigger for XAU/USD bears. Moreover, the Relative Strength Index at 34.34 hovers just above oversold territory, and the Moving Average Convergence Divergence (MACD) at -6.51 stays in negative territory, hinting that downside pressure persists despite some early signs of stabilization. The precious metal, however, shows some resilience below the $4,000 psychological mark, warranting some caution before positioning for further losses.
Meanwhile, any attempted recovery is more likely to attract fresh sellers and fizzle out near the trading range support breakpoint, now turned resistance, near the $4,065-$4,070 region. This is followed by the $4,100 round figure, which, if conquered, could trigger a short-covering rally and lift the XAU/USD pair to the $4,170 intermediate hurdle en route to the $4,200 mark. Sustained strength and acceptance above the latter is needed to back the case for a sustained near-term recovery.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
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.
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.
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.
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.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
