Gold falls below $4,000 as rising oil prices bolster expectations of a Fed rate hike

• At around $3,995, gold remains under pressure in early Asian trading on Monday.
• Rising energy costs have heightened inflation worries, strengthening expectations of a US interest rate increase.
• A Fed hold this week carries a 90.6% probability in traders’ pricing, while the likelihood of a December rate rise stands at 79.4%.

With energy prices elevated and inflation concerns mounting ahead of the Federal Reserve’s (Fed) next policy meeting, gold (XAU/USD) slips towards $3,995 in Monday’s early Asian session. Selling pressure continues to weigh on the precious metal, which is trading close to its lowest level since July.

Fears of further disruption to energy supplies following Houthi attacks in Saudi Arabia pushed WTI crude oil to its highest price in more than five months.

Over the weekend, US President Donald Trump said it was “getting to be decision time” on whether to reach a deal with Tehran or resume attacks. His comments came as Iranian and Houthi threats against Americans in the Middle East continued to grow, leaving uncertainty in the region elevated.

Ryan McKay, senior commodity strategist at TD Securities, said: “Gold is being weighed down by concerns around oil prices, rates and the Fed outlook,” adding: “At the margin, flows have also been negative, with heavy CTA selling this week adding to the pressure.”

The rise in oil prices has encouraged bets on another interest rate increase in December, although traders assign only a small probability to a quarter-point rise at next week’s policy meeting. As gold pays no interest, higher rates generally diminish its appeal relative to assets that offer a yield.

According to the CME FedWatch tool, market pricing puts the probability of a December Fed rate rise at 79.4%. The likelihood that the US central bank will leave rates unchanged at its forthcoming meeting this month stands at 90.6%.

Gold retreats as surging oil renews concerns over Fed tightening

Despite a global technology share sell-off unsettling wider markets, OCBC strategists say gold "came under renewed selling pressure overnight, falling more than 2.5%," highlighting additional pressure on the metal as "Brent’s sharp rise amid renewed Middle East supply concerns added to inflation worries and expectations that the Fed may need to keep rates restrictive for longer," according to the bank. OCBC singles out the observation that "gold continued to weaken even as US Treasury yields fell sharply," with the divergence indicating that "neither lower yields nor heightened geopolitical uncertainty has been sufficient to support gold, suggesting that near-term sentiment remains fragile."

In light of these conditions, OCBC explains its stance: "we remained cautious in the near term, particularly as gold has struggled to respond positively to the recent decline in yields." The bank sees a potential source of support ahead, arguing that "an easing in oil prices and further decline in real yields could help gold stabilise," although its strategists "would want to see a better price response before turning more constructive in the near-term."

Fed leaves policy options open as Warsh highlights investment growth and AI risks

A score of 5.6/10 on the FXS Speechtracker places Fed Chair Warsh’s remarks modestly below the historical average of 6.1/10. This suggests a slightly less impactful tone than the established baseline, although the policy message was broadly unchanged. His acknowledgement of being “over-scarred” by the Global Financial Crisis sits alongside an emphasis on an investment surge supported by “good policies” and caution over AI’s uncertain effects on employment. Together, these comments reflect a risk-conscious approach, combining optimism about structural growth with awareness of downside tail risks. By declining to pre-judge the October and December meetings, Warsh deliberately leaves the policy outlook unclear, containing any immediate repricing of US dollar expectations.

A 0.00-point move left the FXS Fed Sentiment Index unchanged at a still-elevated 127.51, indicating that the speech did not dislodge perceptions of a firmly hawkish policy stance. Taken together, the steady index and slightly softer FXS Speechtracker score imply that markets perceive no significant change in how the Fed responds to economic developments. Strong commitment to price stability and continued attention to financial stability risks remain supportive of the US dollar.

Technical Analysis: Gold stays under pressure beneath the 100-day SMA

On the daily chart, spot XAU/USD remains below both the 100-day simple moving average (SMA) and the middle line of the 20-day Bollinger Bands, keeping the short-term outlook bearish. Following the recent break outside the bands, the price is also beneath the lower Bollinger band, reinforcing the downward pressure. Meanwhile, the Relative Strength Index (14) stands at 34.13, just above oversold territory. This suggests that selling momentum remains in control, although conditions are approaching stretched levels.

The lower Bollinger band, near $4,015, provides the first upside resistance, ahead of the Bollinger 20-day SMA at $4,130. Further up, a wider supply zone is defined by the 100-day SMA at $4,220 and the upper Bollinger band at $4,240. Gold would need to regain this area to temper the prevailing bearish outlook and create scope for a more durable recovery.

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