Oil sell-off weighs on USD as Gold rises above $4,100 despite Fed rate hike bets

• Gold climbs nearly 1% to trade above $4,100 as US Dollar losses deepen.
• WTI slides nearly 6% as the probability of a December Fed rate hike climbs to 84%.
• China's central bank increases its Gold holdings by 25.8 metric tons before  US CPI data.

Gold (XAU/USD) trades above $4,130 on Monday, advancing over 1.50% as a softer US Dollar supports the metal. The gains come despite a modest hawkish shift in rate expectations following last Friday’s strong US jobs report, which prompted markets to raise bets on a Federal Reserve (Fed) rate hike in December.

Can XAU/USD extend gains as falling Oil weighs on the USD despite stronger Fed tightening bets?

Risk appetite is improving and US equities are rebounding, partly after US President Donald Trump said it was “highly unlikely” he would order additional strikes on Iran. West Texas Intermediate (WTI), the US Oil benchmark, consequently dropped nearly 6% to $85.00. Its positive correlation with the Greenback pulled the US currency lower as well.

Reports of renewed US-Iran nuclear negotiations surfaced at the time of writing. Citing sources, Al-Arabiya said a Qatar-Pakistani proposal would permit Iran to enrich uranium to 3.67%. Washington had reportedly agreed to the terms, while Tehran had accepted the proposal.

A 0.46% decline has taken the US Dollar Index (DXY), which measures the currency against its peers, to 101.81. In contrast, the US 10-year Treasury yield has climbed two basis points to 4.889%, with traders starting to factor in additional tightening following last Friday’s employment report.

After Nonfarm Payrolls far exceeded forecasts, the Unemployment Rate fell to 4.1% from 4.2%. December rate-hike odds now stand at 84%, according to the CME FedWatch Tool, compared with 76% last Friday.

Although higher interest rates typically weigh on non-yielding Gold, central bank purchases continue to provide support. According to the World Gold Council, the People’s Bank of China (PBoC) increased its reserves by nearly 25.8 metric tons in October, marking its biggest monthly Gold purchase in three years.

Comments from Federal Reserve (Fed) officials also drew attention. Richmond Fed President Thomas Barkin said there was no base case for December rates, noting that risks to the mandate were concentrated on the inflation side.

Chicago Fed President Austan Goolsbee had earlier struck a hawkish tone. He said services inflation was starting to “pick up,” had become a “big problem,” and that the Fed needed to acknowledge its failure on inflation.

Tuesday’s US Consumer Price Index (CPI) release is now in focus. The October headline reading is expected to accelerate to 3.9% YoY from 3.7%, while Core CPI is forecast to increase to 2.8% YoY from 2.6%.

XAU/USD technical outlook: Can Gold overcome its struggle at $4,100 after retreating?

Despite a firm start to the week, Gold continues to trade below last Thursday’s $4,146 high. The modest price rise is not matched by momentum strong enough to rule out further consolidation, as the Relative Strength Index (RSI) approaches the neutral 50 level.

To sustain the bullish move, XAU/USD needs to break through the confluence of its 100- and 50-day Simple Moving Averages (SMAs) at $4,191 and $4,201, respectively. A move beyond this zone would put the psychological $4,300 level next in focus.

For sellers to gain ground, Gold would first need to fall below $4,100 and then $4,000. Below those levels, attention would turn to the daily low of $3,919 recorded on November 4, followed by the year-to-date low of $3,879 set on October 30.