Will gold bears see a $4,100 break as oil fuels Fed hike bets and USD edges up?

Gold stays under pressure for a fourth consecutive day as several adverse factors weigh on sentiment.
Non-yielding bullion faces pressure as oil-related inflation concerns strengthen bets on a December rate hike.
Losses in the precious metal are contained as hopes of diplomacy with Iran restrain the USD.

Selling pressure pushes Gold (XAU/USD) to a new weekly low in Wednesday’s Asian session, although bears are waiting for a sustained break and acceptance below $4,100 before positioning for additional declines. Volatility in oil prices poses inflation risks, reinforcing expectations of further policy tightening by the US Federal Reserve (Fed). Bullion is also being weighed down by a modest recovery in the US Dollar (USD) from the nearly three-week low reached on Tuesday.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Renewed optimism over US-Iran peace talks triggered a sharp intraday reversal in crude oil on Tuesday after prices had reached their highest level in over one month. An unconfirmed report suggested that Qatar and Pakistan had presented the US and Iran with a compromise proposal that satisfied both sides’ demands. Subsequently, however, Bloomberg reported that a diplomat involved in the US-Iran negotiations had challenged reports indicating that an agreement was near. State media also reported that Iranian Parliament Speaker Mohammad Bagher Ghalibaf had told Pakistan’s Army Chief, Asim Munir, that the US could not gain Iran’s trust unless it fulfilled previously stated conditions. These included ending all hostilities and unfreezing the country’s assets. Expectations of an immediate breakthrough consequently eased.

Concerns about disruptions to crude supplies deepened after Iran’s First Vice President said the country had no option but to exercise sovereignty over the Strait of Hormuz. This helped oil prices recover rapidly from their weekly low. Alongside the elevated US inflation readings published last week, these developments reinforce market expectations of an imminent Fed rate increase. Traders currently assign a probability of over 90% to another rise in US borrowing costs in December, according to the CME Group's FedWatch Tool. Uncertainty over the Middle East crisis is also lending some support to the safe-haven Greenback. That adds to the downward pressure on Gold for a fourth consecutive day and strengthens the argument for further declines.

Aggressive directional positioning may nevertheless remain limited as investors await clearer signals on the Fed’s policy trajectory. Attention will therefore centre on the outcome of the two-day FOMC policy meeting on October 28, followed by the US Personal Consumption Expenditures (PCE) Price Index on October 29. The latter is the Fed’s preferred inflation measure. Next week’s monetary policy announcements from other major central banks – the Reserve Bank of New Zealand (RBNZ), the Bank of Canada (BoC), the European Central Bank (ECB) and the Bank of Japan (BoJ) – should also give non-yielding Gold some meaningful direction. Even so, the wider fundamental environment favours XAU/USD bears, suggesting that prices remain more likely to move lower.

What does the XAU/USD 4-hour chart indicate?

Can Gold’s technical outlook improve?

The bearish outlook is reinforced by the overnight failure to overcome the 100-period Exponential Moving Average (EMA) on the 4-hour chart, followed by a retreat. Momentum indicators also point to weakness, though not yet to oversold conditions: the Moving Average Convergence Divergence (MACD) is below zero at -4.65, while the Relative Strength Index (RSI) stands at 39.16. A move below $4,100 would strengthen the bearish bias and bring the monthly swing low near $4,066 into focus.

If selling continues, Gold could face an accelerated decline towards the psychological $4,000 level, followed by the year-to-date low in the $3,943-$3,942 region recorded in June. For any recovery, the 100-period EMA near $4,175 could remain a strong immediate resistance. Only sustained gains above that hurdle would alleviate the prevailing bearish tone and create scope for a stronger recovery.

(An AI tool assisted in preparing this article’s technical analysis. Learn more.)

Common questions about the Fed

How does the Federal Reserve’s role affect the US Dollar?

The Federal Reserve (Fed) sets US monetary policy with two objectives: maintaining price stability and promoting full employment. Adjusting interest rates is its main means of pursuing these goals. If prices rise too rapidly and inflation exceeds the Fed’s 2% target, the central bank increases interest rates. Borrowing then becomes more expensive across the economy. Higher rates make the US a more appealing destination for international investors’ funds, strengthening the US Dollar (USD). Conversely, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut interest rates to stimulate borrowing, putting pressure on the Greenback.

How frequently does the Fed meet to decide monetary policy?

At eight policy meetings each year, the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC) reviews the economy and decides on monetary policy. Twelve Fed officials participate in the FOMC: all seven Board of Governors members, the president of the Federal Reserve Bank of New York, and four of the other eleven regional Reserve Bank presidents. Those four serve rotating one-year terms.

How does Quantitative Easing (QE) work, and what does it mean for USD?

When conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE), a policy that substantially expands credit flows through a stalled financial system. Used during crises or periods of exceptionally low inflation, QE is an unconventional policy measure. The Fed relied on it as its preferred response during the Great Financial Crisis in 2008. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result.

How does Quantitative Tightening (QT) work, and what does it mean for the US Dollar?

By reversing QE, quantitative tightening (QT) sees the Federal Reserve halt bond purchases from financial institutions. It also stops reinvesting the principal repaid on its maturing bond holdings in new bonds. This process generally supports the US Dollar’s value.