Rising Fed hike expectations push Gold below $4,150 despite US-Iran deal hopes

Gold edges down towards $4,125 as Tuesday’s Asian session gets under way.
A December Fed rate hike carries an 84% probability in market pricing.
Further airstrikes on Iran will not be needed, Trump says.

Gold (XAU/USD) remains under pressure near $4,125 in early Asian trade on Tuesday, as a stronger-than-forecast US Nonfarm Payrolls (NFP) report fuels expectations of additional US interest rate increases. For fresh direction, traders will watch developments around the US-Iran peace agreement aimed at ending the war.

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

Expectations that the Federal Reserve (Fed) could maintain higher interest rates for longer have strengthened following last week’s robust US employment report. October job additions stood at 165,000, exceeding forecasts and rising from September’s 60,000.

October also saw the unemployment rate decline to 4.1%. Since gold offers no yield, higher interest rates raise the opportunity cost of holding it, reducing its appeal to investors.

According to the CME FedWatch tool, traders now assign around an 84.0% chance to a December rate increase by the Fed. Before the US employment release, that probability stood at 72.8%.

Lower crude oil prices, however, could temper inflation worries and cushion the precious metal’s decline. A sharp fall in oil followed US President Donald Trump’s remarks playing down the prospect of fresh strikes on Iran. Supply worries nevertheless remained in focus after attacks on vessels near the Strait of Hormuz.

How is risk aversion supporting gold as equities and yields come under pressure?

Despite credit markets being “fairly flat on both sides of the Atlantic,” Deutsche Bank analysts highlight that the “risk-off tone in equities meant it was a good week for gold, which was up +5.06% (-0.42% Friday) in its best week since August.” The analysts also say the change in sentiment, “along with the risk-off tone from the AI selloff,” “helped to bring down sovereign bond yields around the world.” Nevertheless, their observation that “the 10-year US Treasury yield is up +1bps at 4.87% and Brent down around a percent as I type,” illustrates how defensive demand for gold has developed amid divergent moves in other major asset classes.

Technical Analysis: Can Gold Break Above the 100-day SMA?

The daily chart shows limited near-term upside for XAU/USD: spot prices sit beneath the 100-day Simple Moving Average (SMA), but remain above support at the 20-day Bollinger middle band. Rather than signalling a clear bullish breakout, the Relative Strength Index (RSI) near 52 indicates mildly positive momentum. Taken together, these signals point to a corrective rebound within a wider consolidation phase.

A daily close above the resistance cluster formed by the 100-day SMA around $4,200 and the stronger upper Bollinger band barrier near $4,225 would be required to clear the way for higher highs. The 100-day SMA is the first upside hurdle. On the downside, the Bollinger middle band around $4,065 offers the nearest support, followed by the lower band near $3,900. A breach of the latter would leave prices vulnerable to a deeper correction towards previous cycle lows.

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

Gold: Frequently Asked Questions

What makes Gold an investment choice?

Throughout human history, Gold has been important both as a means of exchange and as a store of value. Beyond its lustre and use in jewellery, the precious metal is now widely regarded as a safe-haven asset, or an investment considered attractive during periods of turmoil. Its independence from any particular issuer or government also underpins its widespread use as a hedge against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of Gold are central banks. To support their currencies during unsettled periods, they typically diversify reserves and purchase Gold, strengthening perceptions of both the economy and the currency. Substantial Gold reserves can bolster confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes of Gold, valued at around $70 billion, in 2022. No larger annual purchase has been recorded since records began. Emerging-market central banks, including those in China, India and Turkey, are expanding their Gold holdings rapidly.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries, which serve as major reserve and safe-haven assets, have an inverse correlation with Gold. Dollar weakness generally supports Gold, allowing central banks and investors to diversify their holdings during turbulent periods. The precious metal also tends to move in the opposite direction to risk assets: stock-market gains usually put pressure on Gold prices, while selling in riskier markets generally supports them.

Which factors drive Gold prices?

A broad range of influences can affect Gold prices. Its safe-haven appeal means geopolitical turmoil or concerns over a severe recession can trigger rapid gains. Because Gold pays no yield, falling interest rates generally support it, whereas a higher cost of borrowing usually puts it under pressure. Most price movements, however, hinge on the US Dollar (USD), since Gold is quoted in dollars (XAU/USD). Dollar strength tends to restrain Gold prices, while a softer Dollar is likely to lift them.