Gold recovers from YTD low, retakes $3,900; Fed hike bets and bullish USD to cap gains
- Gold attracts some buyers on Friday as the USD pauses after a strong rally to a 19-month peak.
- Fed hike bets and geopolitical risk could limit deeper USD losses and cap the upside for bullion.
- The technical setup further warrants some caution before positioning for any meaningful gains.
Gold (XAU/USD) gains some positive traction during the Asian session on Friday, climbing back above the $3,900 mark and snapping a three-day losing streak to its lowest level since late September, which it touched the previous day. The US Dollar (USD) takes a breather after a strong three-day rally to its highest level since April 2025 and offers some support to the commodity. However, firming US Federal Reserve (Fed) rate hike expectations and Middle East uncertainties might continue to act as a tailwind for the Greenback. This, in turn, should keep a lid on any meaningful recovery for the precious metal.
Against the backdrop of hotter-than-expected US October consumer inflation figures, hawkish commentary from several Federal Reserve (Fed) officials prompted traders to price in a tighter monetary policy stance. In fact, the CME Group's FedWatch Tool indicates that a 25-basis-points (bps) rate hike in December is fully priced in, and traders are assigning around a 13% chance of a jumbo 50-bps increase. This, along with the overnight move higher in crude oil prices, led to an extended selloff in US Treasuries, lifting the yield on the benchmark 10-year government bond further beyond the 5% threshold and favoring USD bulls.
Meanwhile, US President Donald Trump on Thursday issued a fresh warning to Iran and said that those responsible for any attack on American officials would no longer exist. Trump added that he would not hesitate to launch further military action if the situation warranted it. Adding to this, Trump wrote in a Truth Social post that the US does not need a deal with Iran, adding that those days have long since passed. Moreover, attacks on Saudi Arabia's energy infrastructure and commercial ships in the Strait of Hormuz keep the geopolitical risk premium in play, which validates the positive USD outlook and should cap the Gold price.
Moving ahead, the US Producer Price Index (PPI) highlights Friday's economic docket. Furthermore, speeches from influential FOMC members would influence expectations about the Fed's policy path. Apart from this, the incoming geopolitical headlines might continue to infuse volatility in global financial markets and drive USD demand, providing some impetus to the commodity. Nevertheless, the XAU/USD pair remains on track to register weekly losses. Meanwhile, the fundamental backdrop seems tilted firmly in favor of USD bulls, suggesting that any subsequent rise in the gold price is more likely to be sold into and remain capped.
XAU/USD 4-hour chart
Technical Analysis
The XAU/USD pair maintains a near-term bearish bias following the recent repeated failures near the $4,150 horizontal resistance and a break below the 100-period Exponential Moving Average (EMA) on the 4-hour chart. Moreover, momentum indicators stay weak, with the Relative Strength Index (RSI) hovering near the oversold band at 35.43 and the Moving Average Convergence Divergence (MACD) holding in negative territory with the line around -15.22. This, in turn, hints that downside pressure is still dominant despite the early signs of exhaustion.
Hence, any further move up could face initial resistance near the $3,960 area ahead of the $4,000 psychological mark and the 100-period EMA at $4,037.06. A sustained recovery above this barrier would be needed to ease the current bearish setup and open the way for a broader corrective bounce towards the $4,100 round figure en route to the $4,150 barrier. On the downside, the $3,865-$3,855 region, or the year-to-date low, could act as an interim demand area, which, if broken, will set the stage for an extension of a well-established downtrend from the August swing high.
(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.
