Why is gold falling below $4,000 as higher oil prices strengthen Fed rate-hike expectations?

• Selling pressure keeps Gold near $3,995 as Monday’s early Asian trading gets under way.
• Expectations of a US rate hike strengthened as rising energy costs heightened inflation worries.
• Traders assign a 90.6% probability to the Fed holding rates steady this week, while putting the likelihood of a December increase at 79.4%.

Selling pressure persists in Gold (XAU/USD), pulling the price towards $3,995 in early Asian trading on Monday and keeping it close to its lowest level since July. Ahead of the Federal Reserve’s (Fed) next policy meeting, elevated energy costs have intensified concerns over inflation.

Concerns about further disruptions to energy supplies following Houthi attacks in Saudi Arabia pushed WTI crude oil to its highest level in more than five months.

With Iranian and Houthi threats against Americans in the Middle East continuing to increase, uncertainty across the region remains elevated. Over the weekend, US President Donald Trump said it was “getting to be decision time” on whether to reach a deal with Tehran or restart attacks.

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.”

Rising oil prices have encouraged bets on another rate increase in December, although traders assign only a small probability to a quarter-point hike at next week’s policy meeting. Since gold offers no interest income, higher rates generally reduce its appeal relative to yield-bearing assets.

According to the CME FedWatch tool, markets put the probability of a December Fed rate increase at 79.4%. For the US central bank’s forthcoming meeting this month, the likelihood of rates remaining unchanged stands at 90.6%.

Why is gold falling as surging oil renews Fed tightening concerns?

Despite turmoil in broader markets from a global tech sell-off, OCBC strategists say gold "came under renewed selling pressure overnight, falling more than 2.5%,". They attribute the additional pressure on the metal to the fact that "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,". The bank singles out the observation that "gold continued to weaken even as US Treasury yields fell sharply," as evidence that "neither lower yields nor heightened geopolitical uncertainty has been sufficient to support gold, suggesting that near-term sentiment remains fragile."

Explaining its stance against this backdrop, OCBC says "we remained cautious in the near term, particularly as gold has struggled to respond positively to the recent decline in yields." For the outlook, the bank suggests that "an easing in oil prices and further decline in real yields could help gold stabilise," while making clear that its strategists "would want to see a better price response before turning more constructive in the near-term."

What do Warsh’s investment and AI remarks signal as Fed options stay open?

An immediate repricing of Dollar expectations remains constrained by Fed Chair Warsh’s refusal to prejudge the October and December meetings, leaving the policy trajectory intentionally unclear. His remarks received a 5.6/10 FXS Speechtracker score, slightly below the historical average of 6.1/10, indicating a somewhat less impactful tone than the established baseline despite largely consistent policy messaging. Acknowledging that he was “over-scarred” by the Global Financial Crisis, Warsh highlighted an investment surge supported by “good policies” while expressing 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.

Support for the Dollar continues to rest on firm commitment to price stability and close attention to financial stability risks. The FXS Fed Sentiment Index recorded a 0.00-point change, holding at an elevated 127.51 and indicating that the perceived policy stance remained firmly hawkish after the speech. Read alongside the slightly softer FXS Speechtracker score, the unchanged index suggests that markets detected no meaningful alteration in how the Fed responds to economic conditions.

Technical Analysis: Can Gold Shake Off Its Bearish Bias Below the 100-Day SMA?

Downside pressure remains evident on the XAU/USD daily chart, with spot prices below the lower Bollinger band following the recent break outside the envelope. The near-term bias stays bearish as prices are also capped by the 100-day simple moving average (SMA) and the 20-day Bollinger middle band. At 34.13, the Relative Strength Index (14) sits just above oversold territory, suggesting that sellers retain control even as momentum approaches stretched levels.

Any recovery would first face resistance near $4,015 at the lower Bollinger band, before encountering the Bollinger 20-day SMA at $4,130. Further up, a wider supply zone spans the 100-day SMA at $4,220 and the upper Bollinger band at $4,240. Prices would need to regain this zone to temper the prevailing bearish bias 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.)