Gold struggles for traction near $3,900 as US election risks and Middle East developments draw traders’ attention

Gold’s recovery falters amid an Oil rebound and persistent expectations of a hawkish Fed.
For fresh directional cues, traders await US midterm elections and employment figures.
With bearish momentum prevailing, Gold risks revisiting its yearly low of $3,870.

Gold (XAU/USD) comes under pressure on Tuesday, with its recovery losing steam as Oil prices bounce back. The rebound follows a Wall Street Journal (WSJ) report of a US strike on Iran’s Qeshm Island, which has dented optimism surrounding diplomatic efforts after that optimism drove a sharp fall in energy prices the previous day. XAU/USD is trading near $3,900 at the time of writing, a decline of 1% on the day.

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

Shifting headlines continue to trigger volatility in Oil markets. Following a fall of nearly 7% on Monday, West Texas Intermediate (WTI) is trading near $97, a gain of 2.23%.

Since the war started in late February, the relationship between Oil prices and interest rate expectations has been a major influence on Gold. As rising energy costs intensify inflationary pressures, central banks, especially the Federal Reserve (Fed), are prompted to maintain elevated interest rates or tighten policy further. The resulting increase in borrowing costs typically hurts the precious metal, raising the opportunity cost of owning an asset that generates no yield.

After increasing interest rates by 25 basis points (bps) in September, the Fed held them steady in October and reiterated its commitment to bringing prices back to stability. Further rate increases therefore remain possible: the CME FedWatch Tool puts the probability of a December hike at 75%.

Demand for the US Dollar (USD) continues to draw support from uncertainty in the Middle East, costlier Oil and hawkish expectations for the Fed. Although the currency has eased modestly from recent highs, it remains an additional drag on Gold. Trading near 101.81, the US Dollar Index (DXY) measures the currency’s performance against six major peers.

A lasting fall in Oil prices is needed to give Gold greater room to recover in this environment. However, with US-Iran negotiations still lacking clarity, such a fall remains uncertain in the near term. Further liquidation is another risk for the metal: worries about AI spending are pressuring technology shares, prompting some investors to sell Gold to offset losses and meet margin calls.

A packed US employment calendar now comes into focus for traders, opening with Tuesday’s JOLTS Job Openings and concluding with Friday’s Nonfarm Payrolls (NFP). Also on Tuesday, US midterm elections will draw attention for their potential to shape the US Dollar’s direction.

How could US midterm results and Iran risks shape the Dollar outlook?

For Commerzbank’s Norman Liebke, an outcome in which “the Republicans lose their majorities in both chambers” could mean the Dollar would “come under greater pressure, as the Trump administration would have less political backing overall.” He adds that even if “only the House of Representatives changes hands, the Dollar would likely face some headwinds as well, albeit to a lesser extent,” while the alternative is that “if the Republicans retain control of both chambers, this should instead provide support for the Dollar.”

The aftermath also matters, Liebke emphasises, noting that “what happens immediately after the midterms is also likely to be relevant for the Dollar.” His particular warning is that “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.” Should risk aversion take hold, 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: Could weak momentum bring further losses?

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. Meanwhile, the Moving Average Convergence Divergence (MACD) continues to register a negative reading below zero. Taken together, these indicators suggest sellers remain in control, although the sell-off is becoming stretched.

Any recovery first faces resistance in the $3,950-$4,000 band and then at the 21-day SMA of $4,092. Further up, a wider supply zone comprises the 100-day SMA at $4,210 and a horizontal hurdle near $4,400. Beyond those levels, the 200-day SMA at $4,485 represents a more distant structural cap.

Further downside remains a risk for Gold, with Friday’s yearly trough of $3,870 providing immediate support. A breach of that level could open the door to additional losses.

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

Gold: Frequently asked questions

What makes Gold attractive to investors?

Widely used both to preserve value and to facilitate exchange, Gold has held an important place throughout human history. Today, its appeal extends beyond its lustre and use in jewellery: the precious metal is broadly regarded as a safe-haven asset, or an investment considered suitable during periods of turmoil. Because Gold does not depend on a particular issuer or government, it is also commonly viewed as a hedge against inflation and currency depreciation.

Which buyers hold the largest Gold reserves?

The largest holders of Gold are central banks. To bolster their currencies during unsettled periods, they typically diversify reserves and purchase Gold, reinforcing perceptions of economic and currency strength. Substantial Gold holdings can also underpin confidence in a country’s solvency. According to World Gold Council data, central banks expanded 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-economy central banks, including those of China, India and Turkey, are rapidly building their Gold reserves.

How does Gold move relative to other assets?

An inverse relationship links Gold with the US Dollar and US Treasuries, both of which are important reserve and safe-haven assets. Dollar weakness generally supports Gold, allowing investors and central banks to diversify their holdings during turbulent periods. Gold also tends to move in the opposite direction to risk assets: rising stock markets generally put pressure on its price, whereas selling in riskier markets typically benefits the precious metal.

Which factors drive Gold prices?

Several influences can drive changes in Gold prices. Its safe-haven appeal means geopolitical instability or concerns about a severe recession can trigger a rapid price rise. Since Gold pays no yield, lower interest rates generally support it, while higher borrowing costs usually weigh on the yellow metal. Nevertheless, the behaviour of the US Dollar (USD) determines most price moves, as Gold is quoted in dollars (XAU/USD). Dollar strength tends to restrain Gold prices; a weaker Dollar, by contrast, is likely to lift them.