Gold retakes $4,060 ahead of pivotal Fed decision as Oil declines

• After testing $3,989, Gold gains over 1% to reach $4,061.
• WTI’s decline towards $100 eases energy-related inflationary pressure.
• Ahead of Warsh’s remarks, markets put the probability of a December Fed rate rise at 83%.

From an intraday low of $3,989, Gold has recovered to trade at $4,061, gaining over 1% on Tuesday despite advances in the US Dollar and US Treasury yields. Lower Oil prices are lending support to the precious metal as investors prepare for Wednesday’s Federal Reserve (Fed) decision.

XAU/USD recovers as cheaper Oil eases inflation pressure despite higher US yields

A decline of more than 1% in West Texas Intermediate (WTI), the US Oil benchmark, to $100.05 per barrel has left geopolitics steering market moves. Today’s US economic releases offered little direction for Gold, which began the session lower before moving into positive territory.

With US-Iran talks apparently stalled, a swift end to the Middle East conflict looks distant. Recent reporting suggests that the US and Israel are likely to renew their attack on Tehran after elections in Israel and the US midterm elections. This prospect lifted WTI above the $100.00 mark on Monday.

Weaker-than-forecast US housing figures drew little attention from market participants. According to the Conference Board, Consumer Confidence climbed from 84.2 to 91.7 in October as Americans became more upbeat about employment and business conditions. Inflation expectations, by contrast, held steady at the previous reading of 5.8%.

September’s Durable Goods Orders increased by 1.8%, compared with 0.1% previously, with business investment remaining robust as AI infrastructure expanded. The ADP Employment Change 4-week average, however, slipped from 18.5K to 16.8K, suggesting a modest cooling in the labour market.

Unless the monetary policy statement signals a sharply hawkish shift, traders’ attention at the Fed meeting will lie elsewhere. Money markets assign a 9% probability to a rate rise, which would come as a surprise ahead of the US midterm elections. The focus is on a speech by Fed Chair Kevin Warsh, which could clarify the next policy step at December’s meeting.

Alongside the Fed, two other central banks are expected to raise rates amid concerns that energy prices will keep climbing. Thursday brings the European Central Bank (ECB) decision, with the Bank of Japan (BoJ) following on Friday. Expectations are for the ECB to keep rates on hold on Thursday.

According to Prime Terminal data, markets assign an 83% probability to a 25-basis-point Fed rate rise in December. While those odds remain positive, they have continued to fall from last week’s 90%.

Thursday’s calendar is also in focus, with traders awaiting US Gross Domestic Product (GDP) data and the core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred measure of inflation.

XAU/USD technical analysis: Gold holds $4,000 as buyers target $4,100

Today’s move above October’s 23-day high of $4,034 confirms the "bullish harami" candlestick pattern formed by Gold. Near-term momentum favours buyers, but the Relative Strength Index (RSI) remains bearish, calling for caution.

The next upside hurdle lies near $4,100, where a resistance trendline extends from around September’s highs. A break above it would bring $4,200 into view. Beyond that, key resistance sits at the 100-day Simple Moving Average (SMA) of $4,219, followed by the 50-day SMA at $4,288.

A drop through $4,000 would leave XAU/USD vulnerable to a test of last Friday’s $3,975 low. Further support is located at the 17 July low of $3,959, ahead of the year-to-date (YTD) trough of $3,941.