Gold recovers towards $4,000 as oil and the US dollar fall on Iran peace hopes

• Gold climbs more than 2% to $3,954 as US Dollar losses gather pace.
• A fall of nearly six basis points takes US 10-year Treasury yields to 4.871%.
• The probability of a December Fed rate rise remains around 75% despite firmer US manufacturing activity.

Lower crude prices on Monday are weighing on the US Dollar (USD), given its positive correlation with oil as elevated energy costs put pressure on inflation. Against that backdrop, Gold (XAU/USD) has rebounded by more than 2% and is trading at $3,954 at the time of writing.

XAU/USD rallies as lower energy prices and Treasury yields renew demand for bullion

Growing speculation about a diplomatic resolution to the US-Iran conflict has sent oil prices sharply lower. According to reports, Iran’s supreme leader gave President Masoud Pezeshkian “certain authorities” in relation to peace talks. Risk appetite improved on news that US President Donald Trump favours a peaceful resolution. That has weighed on the Greenback, which typically benefits from high interest rates and demand for safe-haven assets.

At 101.68, the US Dollar Index (DXY) is 0.27% lower against the basket of six currencies it tracks. US Treasury yields have also eased: the 10-year yield has fallen nearly 6 basis points to 4.871%.

October’s Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) rose to 55.5 from 54.5 in the US, beating the 54.6 forecast. Within the report, the Prices Paid sub-component declined to 75.2 from 77.9, while the employment measure softened over the month.

Traders have scaled back their hawkish bets compared with a week earlier, despite business activity posting its second-highest reading in more than four years, signalling solid economic expansion. According to the CME FedWatch Tool, money markets now assign a 75% probability to a December rate rise, compared with 80% a week ago.

US midterm elections and economic releases take centre stage

Tuesday brings the US midterm elections, Factory Orders and the Job Openings and Labor Turnover Survey (JOLTS), alongside speeches from Federal Reserve officials, all of which are in traders’ sights.

XAU/USD technical outlook: Gold retakes $3,900 but recovery remains unfinished

Following a rebound from its yearly lows, Gold remains in an upward trend, even as the Relative Strength Index (RSI) indicates that buyers are building momentum. Although XAU/USD has recovered from below $3,900 to its current spot level, it has yet to clear the latest cycle low of $3,975. That level, the 23 October low of the day (LOD), now acts as resistance.

A completed bullish reversal requires buyers to clear the 23 October LOD and then the psychological $4,000 mark. Moving above the latter would bring a key resistance trendline around $4,050-$4,070 into view, followed by $4,100.

A resumption of the bearish move requires a drop below $3,900. Such a decline would expose the 30 October yearly low of $3,870, with the daily high of 22 April 2025, now support at $3,500, next in line.