Gold reclaims $4,200 as weak US sentiment revives bullion demand

• Gold rises 1.40% after rebounding from $4,130.
• US consumer sentiment falls to 46.3, missing expectations.
• October Fed hold odds reach 81% as December hike bets persist.

Gold (XAU/USD) price advances more than 1.40% on Friday, capitaliszng on a dip in US Treasury yields and a softer Greenback, as recent US data suggests households are becoming pessimistic about the economy, while investors seem confident that the Federal Reserve (Fed) will stay pat on rates.

XAU/USD climbs to $4,200 supported by falling US yields and a softer USD

XAU/USD trades at $4,194 and approaches the $4,200 mark after hitting a daily low of $4,130.

The University of Michigan Consumer Sentiment Index for October dipped to 46.3, down from 48.1, missing estimates of 47.6. Americans updated their inflation expectations for 1- and 5-year horizons, with the former expected to rise from 4.6% to 4.7% and the latter from 3.4% to 3.5%.

The data suggest consumer spending may dip in the foreseeable future, but Fed officials continue to see a resilient economy, supported by a solid jobs market.

The release of the FOMC’s last meeting minutes on Wednesday showed the board’s full support for a rate hike, though it revealed a division among policymakers: some saw the move as precautionary, while others saw it as the beginning of a tightening cycle.

Fed speaking continued this week, with Fed Governor Christopher Waller in favor of additional rate hikes, though not necessarily consecutive. St. Louis Fed Alberto Musalem said that inflation is high and that the strength of the labor market suggests the Fed must focus on tackling it.

Money markets have priced out a Federal Reserve rate hike in October, with an 81% chance of rates staying in the 3.75%-4% range. For December, there is an 81% chance of a 25-basis-point rate hike to the Fed funds rate, according to Prime Terminal data.

The US 10-year T-note yield is up 1.3 basis points at 5.248%, capping the buck’s fall. The US Dollar Index (DXY), which measures the Greenback’s performance against six currencies, is up 0.18% at 102.30.

Tensions in the Middle East rise

In the meantime, the US-Iran conflict seems far from a swift resolution, even though US President Donald Trump said that he would not attack Iran before the US midterm elections. Despite this, hostilities in Hormuz continued, while in the Red Sea, the Houthis laid mines in Bab el Mandab, aimed at disrupting vessel traffic.

What’s next for Gold investors?

Traders' focus must be on geopolitical developments, Oil prices, US Treasury yields and the US Dollar. Along with this, they need to digest next week’s inflation data on the consumer and producer side, followed by Retail Sales, Fed speaking and jobs data.

XAU/USD technical analysis: Gold challenges the bearish bias as it approaches $4,200

Gold’s downtrend may be at risk as buyers emerged near the low of the day (LOD) of $4,130 and pushed spot prices towards $4,207, the high of the day, before settling below $4,200.

Momentum has shifted mildly bullish, with the Relative Strength Index (RSI) rising but staying below its 50-neutral level.

However, if XAU/USD finishes Friday’s session and the week above $4,200, this could pave the way for a strong recovery. The next resistance is the 100-day Simple Moving Average (SMA) at $4,260. If breached, the next stop is the 50-day SMA at $4,335, before targeting $4,500. Once those levels are cleared, the next stop is the 200-day SMA at $4,529.

On the downside, if Gold dives below $4,150, a potential move to $4,100 is on the cards. Further downside lies below, with the psychological $4,050 ahead of the July 29 cycle low of $3,996, and $4,000 below.