- Gold scales higher for the third straight day amid a softer USD and the recent pullback in US bond yields.
- The Fed’s hawkish outlook and geopolitical uncertainties could help limit losses for the safe-haven buck.
- Traders also seem hesitant ahead of US inflation figures and Fed Chair Warsh’s speech later this week.
Gold (XAU/USD) extends its intraday retracement slide from a one-week high, hitting a fresh daily low around $4,170 during the early European session on Monday. The US Dollar (USD) attracts fresh buyers after a modest downtick amid the US Federal Reserve's (Fed) hawkish outlook, which, in turn, is seen as weighing on the non-yielding bullion.
Dollar upside risks linger as energy pullback cools bond rout
Brown Brothers Harriman’s Elias Haddad observes that a “modest pullback in energy prices eased the global bond sell-off and took some steam out of the USD rally.” However, he cautions that “US growth outperformance and strong foreign appetite for US securities keep USD risks skewed to the upside,” suggesting that any pause in Dollar strength may prove temporary.
Market participants have been pricing out the possibility of a rate hike at the late-October Fed meeting, though expectations for a 25-basis-point increase in December remain firmly on the table. According to CME Group's FedWatch Tool, traders are currently assigning around an 85% probability that the US central bank will raise borrowing costs again by the year-end. The bets were lifted by the September FOMC meeting minutes, released last Wednesday, which confirmed that policymakers still view inflation as the dominant threat to macroeconomic stability and back the case for further policy tightening.
In the Middle East, the Iran-backed Houthi group in Yemen escalated its campaign against Saudi Arabia, targeting Riyadh’s King Khalid International Airport with a mix of ballistic and cruise missiles, as well as drones over the weekend. The deadly attacks drew a Saudi vow of retaliation, with US President Donald Trump raising the possibility of joining strikes on the group and resuming attacks on Iran. Furthermore, Iran’s top security official declared Washington’s response to its proposal for reopening the strategic Strait of Hormuz insufficient. This keeps the geopolitical risk premium firmly in play.
The fundamental backdrop favors USD bulls and might continue to cap the Gold. Traders, however, might opt to wait on the sidelines ahead of the release of US inflation figures – Consumer Price Index (PPI) and Producer Price Index (CPI) on Wednesday and Thursday, respectively. Apart from this, Fed Chair Kevin Warsh's speech at the annual meetings of the IMF and World Bank in Bangkok on Friday would drive the USD and the non-yielding Gold. Nevertheless, the aforementioned factors suggest that the path of least resistance for the XAU/USD pair remains to the downside.
XAU/USD 4-hour chart
Technical Analysis
The precious metal currently trades near a confluence hurdle – comprising the 23.6% Fibonacci retracement and the 100-period Simple Moving Average (SMA) on the 4-hour chart. Despite this overhead supply, momentum is constructive, with the Relative Strength Index (RSI) at 63.9 edging toward overbought territory and the Moving Average Convergence Divergence (MACD) remaining positive and elevated. This, in turn, suggests that bulls are attempting to extend the rebound but still need a clean break above the immediate ceiling to regain firmer control.
Hence, a sustained move beyond the $4,215-$4,220 confluence would open the way toward the next Fibonacci resistance cluster at $4,303 and then $4,378, ahead of higher retracement barriers at $4,452, $4,558 and the cycle-high area near $4,693. On the downside, initial structural support emerges only much lower at the $4,100 mark ahead of the Fibonacci anchor around $4,063. A failure to defend that floor would signal that the broader downtrend is resuming and set the stage for a slide further below the $4,000 psychological mark.
(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.
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.