Gold slides below $4,000 as Fed rate hike bets offset falling bond yields and weak USD
- Gold adds to the previous day’s heavy losses and slides back closer to the monthly low.
- Oil-driven inflation fears bolster Fed hike bets, exerting pressure on the precious metal.
- Declining US bond yields weigh heavily on the USD, although they fail to support the bullion.
Gold (XAU/USD) attracts some follow-through selling for the second straight day and slides below the $4,000 psychological mark during the Asian session on Friday amid hawkish US Federal Reserve (Fed) expectations. In fact, US macro data released on Thursday pointed to resilient economic growth and persistent price pressures, solidifying bets for an imminent rate hike in December. This, in turn, is seen as undermining the non-yielding bullion.
The preliminary estimate of third-quarter Gross Domestic Product (GDP) showed the US economic growth accelerated to an annualised rate of 3.4%, up from 2.2% in the previous quarter and beating the consensus forecast for a reading of 3.2%. Adding to this, the US Commerce Department reported that the Personal Consumption Expenditures (PCE) Price Index rose 0.5% in September and was up 3.6% from a year ago. Moreover, the core gauge, which excludes volatile food and energy prices, rose 0.3% and 3.1% on a monthly basis and yearly basis, respectively. This comes on top of inflationary concerns stemming from elevated US bond yields and underpins prospects for further policy tightening by the Fed.
Meanwhile, US Treasury yields tumbled as investors rushed into safe-haven government bonds after weak tech earnings raised concerns that rising AI spending may not deliver sufficient returns. Moreover, reviving hopes for a diplomatic solution to end conflicts in the Middle East dragged the safe-haven US Dollar (USD) lower for the third straight day, although it does little to ease the bearish pressure surrounding gold. In the latest developments, US Vice President JD Vance sent a direct letter to the secretary of Iran's Supreme National Security Council, Mohsen Rezaei, in an effort to restart peace negotiations. Furthermore, Qatar presented Iran with a new draft deal to end the war with the US and Israel.
However, investors remain wary amid escalating hostilities between the Iran-backed Houthi group in Yemen and Saudi Arabia. Furthermore, threats from the US and Israel to restart attacks after the US midterm elections keep the geopolitical risk premium firmly in play. Meanwhile, Iran's navy claimed Thursday that four oil tankers had struck sea mines in the Strait of Hormuz, adding to supply disruption worries and supporting oil prices. This backs the case for the emergence of USD dip-buying, suggesting that the path of least resistance for gold is to the downside and any recovery is likely to be sold into. Nevertheless, the XAU/USD pair remains on track to register a monthly loss of around 3.5%.
XAU/USD 4-hour chart
Technical Analysis
The precious metal extends its slide within a well-defined downward parallel channel, maintaining a negative near-term bias. Adding to this, the commodity trades below the 100-period Exponential Moving Average (EMA) on the 4-hour chart, which reinforces the bearish structure and should act as dynamic resistance overhead. Meanwhile, momentum indicators further validate the negative tone, with the Relative Strength Index (RSI) hovering near 35 and the Moving Average Convergence Divergence (MACD) line in negative territory. This, in turn, suggests that selling pressure remains dominant while rebounds are likely to be capped by nearby resistance.
On the downside, weakness below the previous monthly swing low, around $3,975, would expose the next notable support marked by the lower boundary of the descending parallel channel, around $3,946. A decisive break beneath this floor would be seen as a fresh trigger for bearish traders and open the door to deeper losses in the coming sessions.
On the topside, any attempted recovery is more likely to confront initial resistance at the $4,025-$4,030 horizontal zone, above which a bout of short covering could lift the Gold to the 100-period EMA around $4,093, ahead of the channel’s upper boundary near $4,126, forming a broader supply zone that would need to be reclaimed to ease bearish pressure.
(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.
