Below $4,050: gold slides to two-month low as oil surges

• Gold slips towards $4,025. Selling emerges in early Asian trading on Friday.
• A surge in oil driven by intensifying Middle East hostilities puts gold under pressure.
• While markets anticipate unchanged Fed rates next week, traders still see scope for another increase in December.

Gold (XAU/USD) drops towards $4,025, its lowest level in more than two months. The decline comes in Friday’s early Asian session, with the precious metal under selling pressure ahead of the Federal Reserve (Fed) policy meeting as worsening Middle East tensions drive oil sharply higher.

Concerns over regional supplies intensified after deadly attacks in Saudi Arabia, lifting the global oil benchmark sharply and fuelling fears of an energy-led inflation shock. With energy costs elevated, the US central bank may be more likely to adjust monetary policy further to curb price pressures.

An airport in eastern Saudi Arabia was attacked on Wednesday evening, according to Yemen’s Houthi, which claimed responsibility. The BBC also reported that a drone was intercepted while attempting to strike an Aramco processing facility in the Shaybah oil field. A contractor’s vehicle was set ablaze there. Aramco is Saudi Arabia’s state oil company.

Last month brought the Fed’s first interest rate increase since 2023, and markets expect additional tightening later this year. Speaking last week, Fed Chairman Kevin Warsh gave no indication of the decision at this month’s policy meeting. He nevertheless said inflation exceeding expectations had not altered his assessment of the US economy.

The probability of rates remaining unchanged at the October meeting is now 92.8%, according to the CME FedWatch tool. As gold offers no interest income, higher rates generally pressure the metal by increasing the relative appeal of yield-bearing assets.

$4,200/4,225 Resistance Caps Gold Consolidation, Societe Generale Warns of Downside

A narrow trading range has developed in gold, according to Societe Generale analysts, who say the metal has "carved out an interim low near $4,065 earlier this month and has since evolved within a narrow consolidation." For resistance, they note that "the upper boundary of this range at $4,200/4,225 represents a short-term resistance zone," adding that "failure to overcome this hurdle could denote the risk of a deeper pullback." The bank identifies initial downside support by noting that "the lower boundary of the consolidation near $4,065 serves as the first support," and cautions that "a break below this may extend the decline towards the June low at $3,960/3,940 and projections near $3,830."

5.6/10 Warsh Speech Score Signals Caution as Fed Weighs Investment and AI Risks

At 5.6/10, Fed Chair Warsh’s FXS Speechtracker score was below the established 6.1/10 baseline, pointing to a moderately cautious delivery and slightly weaker conviction than usual. His admission of being “over-scarred from the global financial crisis” highlights a focus on risk management and financial stability. That caution sits alongside his account of a structural surge in growth and investment driven by “good policies.” By declining to pre-judge the October and December meetings, Warsh preserves considerable policy flexibility. The approach remains data-dependent as the Fed “crystalizes” its assessment of output, employment and inflation, with close attention to AI’s demand-side effects and tail risks.

A 0.00-point change kept the FXS Fed Sentiment Index at a firmly hawkish 127.51. Despite the softer speech score, that unchanged reading indicates the wider policy backdrop is still restrictive. Taken together, the elevated index and mid-range FXS Speechtracker score suggest markets continue to price in a hawkish Fed reaction function. This remains the case even as Warsh emphasises flexibility and recognises uncertainty over AI and its near-term effects on employment.

100-Day SMA Caps Gold: Technical Analysis

On the daily chart, a tight cluster of moving-average and volatility-based resistance levels keeps XAU/USD’s near-term outlook bearish. Spot trades beneath both the 20-day Bollinger middle band and the 100-day simple moving average (SMA). While it remains below these reference levels, rallies are likely to attract selling. At 35, the Relative Strength Index (RSI) sits just above oversold territory. Downward momentum therefore persists, although increasingly stretched conditions could slow it.

The lower Bollinger band, around $4,055, provides the first upside resistance, ahead of the 20-day Bollinger middle band near $4,150. Beyond those levels, a wider supply zone is formed by the 100-day SMA at about $4,230 and the upper Bollinger band close to $4,245. Gold would need to regain that zone to relieve the current bearish pressure and create scope for a more sustained recovery.

(The technical analysis of this story was written with the help of an AI tool. Know more.)