Gold finds little traction near $3,900 as traders weigh Middle East developments and US election risks

• A rebound in oil prices and hawkish Fed expectations hinder Gold’s recovery.
• US employment figures and the midterm elections are in focus as traders seek fresh direction.
• Gold risks revisiting its yearly low of $3,870 as bearish momentum persists.

Trading around $3,900 at the time of writing, Gold (XAU/USD) is down 1% on Tuesday as its recovery loses steam amid a rebound in oil prices. The move follows a Wall Street Journal (WSJ) report of a US strike on Iran’s Qeshm Island, which has tempered optimism about the diplomatic efforts that drove energy prices sharply lower the day before.

After falling nearly 7% on Monday, West Texas Intermediate (WTI) is trading around $97, a gain of 2.23%. Oil remains volatile as traders respond to the changing news flow.

Since the war began in late February, the relationship between oil prices and interest rate expectations has been a central influence on Gold. Rising energy costs increase inflationary pressures, encouraging central banks, notably the Federal Reserve (Fed), to maintain elevated interest rates or tighten policy further. By raising the opportunity cost of holding a non-yielding asset, higher borrowing costs generally put pressure on the precious metal.

Following a 25 basis point (bps) interest rate increase in September, the Fed left rates unchanged in October but reiterated its commitment to restoring price stability. Further tightening therefore remains possible: the CME FedWatch Tool puts the probability of a December increase at 75%.

Demand for the US Dollar (USD) continues to benefit from Middle East uncertainty, firmer oil prices and hawkish expectations for the Fed, creating an additional obstacle for Gold even as the currency eases modestly from recent highs. Tracking the Dollar against six major peers, the US Dollar Index (DXY) is trading around 101.81.

Without a sustained fall in oil prices, the scope for a Gold recovery remains constrained. Uncertainty over US-Iran negotiations makes such a decline far from assured in the near term. Further liquidation also poses a risk to the metal: concerns about AI spending are weighing on technology shares, prompting some investors to sell Gold to offset losses and meet margin calls.

A busy US employment calendar now comes into focus, with Tuesday’s JOLTS Job Openings preceding Friday’s Nonfarm Payrolls (NFP). Traders are also watching the US midterm elections on Tuesday, whose outcome could help shape the Dollar’s direction.

US midterms and Iran risks shape the Dollar outlook

According to Commerzbank’s Norman Liebke, the Dollar could “come under greater pressure, as the Trump administration would have less political backing overall.” That assessment applies if “the Republicans lose their majorities in both chambers”. In the more limited scenario where “only the House of Representatives changes hands, the Dollar would likely face some headwinds as well, albeit to a lesser extent,” he argues. By contrast, “if the Republicans retain control of both chambers, this should instead provide support for the Dollar.”

The immediate aftermath of the vote matters too, Liebke emphasises, noting that “what happens immediately after the midterms is also likely to be relevant for the Dollar.” His warning centres on renewed conflict: “if Trump were indeed to escalate the conflict with Iran again and launch another attack on the country, this would initially point to further increases in energy prices and rising risk aversion.” Against that risk-off backdrop, he says, “the Dollar could benefit from its role as a safe haven, as it did at the beginning of the Iran war.”

Technical analysis: Gold remains exposed to further declines as momentum weakens

Trading beneath its 21-day, 100-day and 200-day Simple Moving Averages (SMAs), XAU/USD retains a bearish bias on the daily chart.

At 34, the Relative Strength Index (RSI) sits just above oversold territory. The Moving Average Convergence Divergence (MACD), meanwhile, continues to register a negative reading below zero. Together, these indicators suggest that downward momentum still prevails, although the sell-off is becoming stretched.

Any recovery would first encounter resistance in the $3,950-$4,000 area, ahead of the 21-day SMA at $4,092. Further up, a broader supply zone is formed by the 100-day SMA at $4,210 and horizontal resistance near $4,400. Beyond those levels, the 200-day SMA at $4,485 represents a more distant structural ceiling.

Friday’s yearly low of $3,870 provides the nearest downside support, with Gold still susceptible to additional losses. A breach could open the way to a further decline.

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