Gold battles to defend $4,000 following steep sell-off

• A weekly decline of more than 3% remains in prospect for Gold, despite an attempted rebound from its lowest levels since July.
• Friday’s US PMI and consumer sentiment releases are in focus as traders prepare for the Fed’s interest rate decision next week.
• With RSI approaching oversold levels, XAU/USD retains a bearish bias beneath its key moving averages.

Thursday’s 2.81% decline has drawn dip buyers back into Gold (XAU/USD), which is attempting to regain ground above $4,000 on Friday. During the Asian session, the metal touched $3,986, its weakest level since July, before rebounding. XAU/USD is trading near $4,028 at the time of writing, still heading for a weekly fall of more than 3%.

In their assessment of “a brutal day for markets on Thursday,” Rabobank analysts report that the S&P 500 fell “1.2% to $7663, dragged lower by the Philadelphia Stock Exchange Semiconductor index, which marched its way to the lowest level since July of this year.” Government bonds rallied strongly as equities sold off sharply. As Rabobank puts it, “bad things for equities meant good things for US Treasuries, as the US 10-year yield moved back below 5% for the first time since September, despite higher energy prices, and the 2-year made its way back below 4.75%.”

Despite Thursday’s falls in equities and US Treasury yields, several headwinds prevented Gold from benefiting. With tensions in the Middle East sustaining upward pressure on energy prices, West Texas Intermediate Oil is trading near five-week highs at around $100 per barrel. The associated inflationary pressure strengthens expectations of interest rates staying higher for longer, raising the opportunity cost of holding the non-yielding metal.

Precious metals may also have been sold by some traders to offset equity losses. Further pressure likely came from technical selling once Gold slipped beneath the $4,100-$4,200 range, which had broadly held from the beginning of October.

Rebounds therefore remain vulnerable to fresh selling, while both the US Dollar and Treasury yields are showing signs of steadying following Thursday’s declines. Trading near 101.78, the US Dollar Index (DXY) is up 0.14%. The index measures the Greenback against a basket of six major currencies. Meanwhile, the benchmark 10-year US Treasury yield is around 4.99%.

Friday’s remaining releases include October’s preliminary S&P Global Purchasing Managers’ Index (PMI) figures and the final University of Michigan consumer sentiment survey. Traders will also scrutinise the survey’s inflation expectations.

Fed decision takes centre stage next week

Following September’s 25 basis points (bps) increase, the US central bank is widely expected to hold interest rates steady. Attention will turn to policymakers’ assessment of persistent inflation risks alongside concerns that weaker AI-related investment could drag on economic growth. Gold’s recovery could be constrained by any indication that a further rate increase in December remains an option.

Technical analysis: Sellers retain the advantage as $4,000 comes under threat

Trading beneath all its major moving averages, XAU/USD continues its correction on the daily chart, leaving the near-term outlook bearish. The Relative Strength Index (RSI) is close to 35 and moving towards oversold territory, underscoring weak momentum. A negative Moving Average Convergence Divergence (MACD) reading below zero also suggests that sellers remain in control. Meanwhile, the Average Directional Index (ADX) is rising modestly around 24, signalling a trend that is gradually gaining strength.

Any recovery first faces resistance at the psychological $4,100 mark, then a horizontal barrier at $4,200. This adds to the significance of the nearby 100-day Simple Moving Average (SMA) at $4,224 as an obstacle to further gains. Beyond these levels, the 50-day SMA at $4,302 stands in the way of the $4,400 area, with the 200-day SMA at $4,509 marking the upper boundary of the broader bearish structure.

Should the psychological $4,000 level fail to hold, losses could deepen towards initial support at $3,950 and then the $3,900 area. A sustained move beneath $3,900 could pave the way for a further slide towards $3,800.

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