$4,100 breached: Gold defies Fed rate hike bets as oil rout weighs on USD

Nearly 1% higher, Gold trades above $4,100. US Dollar losses are gathering pace.
Nearly 6% lower, WTI slides as the probability of a December Fed rate rise climbs to 84%.
25.8 metric tons added to China's central bank Gold holdings before US CPI data.

More than 1.50% higher on Monday, Gold (XAU/USD) trades above $4,130. A weaker Greenback supports the advance despite a modest hawkish repricing after last Friday’s strong US jobs report, which prompted markets to raise bets on a December rate increase by the Federal Reserve (Fed).

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XAU/USD climbs as Oil slump pressures USD despite stronger Fed tightening bets

A recovery in US equities signals renewed risk appetite, partly supported by US President Donald Trump’s statement that further strikes on Iran are “highly unlikely” to be ordered. 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.

Reports at the time of writing indicated that US-Iran nuclear negotiations had resumed. 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.

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

A sharp upside surprise in Nonfarm Payrolls brought the Unemployment Rate down to 4.1% from 4.2%. According to the CME FedWatch Tool, the probability of a December rate rise now stands at 84%, compared with 76% last Friday.

Although higher interest rates typically hurt non-yielding Gold, central bank purchases continue to provide support. World Gold Council data show that the People’s Bank of China (PBoC) increased its reserves by nearly 25.8 metric tons in October, marking its largest monthly 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 and identified inflation as the risk side of the mandate.

Chicago Fed President Austan Goolsbee had earlier struck a hawkish tone. Services inflation was starting to “pick up,” he said, describing it as a “big problem,” and adding that the Fed needed to acknowledge its failure on inflation.

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

$4,100 in focus: Gold retreats in XAU/USD technical outlook

Below last Thursday’s $4,146 high, Gold has nonetheless opened the week higher. The price gain is modest, and momentum points to more consolidation ahead as the Relative Strength Index (RSI) approaches the neutral 50 level.

The confluence of the 100- and 50-day Simple Moving Averages (SMAs), at $4,191 and $4,201 respectively, must be breached for XAU/USD to extend its bullish move. A break above would put the psychological $4,300 level in view.

For sellers, the first downside hurdles are $4,100 and then $4,000. A break beneath both would shift attention to the 4 November daily low of $3,919, ahead of the year-to-date low of $3,879 recorded on 30 October.

Gold: frequently asked questions

What attracts investors to Gold?

Widely used to preserve value and facilitate exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, it is now commonly regarded as a safe-haven asset: 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 turbulent periods, they typically diversify reserves and purchase Gold, reinforcing perceptions of economic and currency strength. Substantial Gold holdings can bolster confidence in a country’s solvency. World Gold Council figures show that central banks purchased 1,136 tonnes, valued at around $70 billion, for their reserves in 2022. No higher annual purchase has been recorded. Emerging-economy central banks, including those in China, India and Turkey, are rapidly expanding their Gold holdings.

How does Gold move relative to other assets?

Both major reserve and safe-haven assets, the US Dollar and US Treasuries typically move inversely to Gold. A falling Dollar tends to lift the metal, helping investors and central banks diversify their holdings during unsettled periods. Gold also has an inverse relationship with risk assets: stock market gains generally weigh on its price, whereas selling in riskier markets tends to support it.

Which factors drive Gold prices?

Many factors influence Gold prices. Its safe-haven appeal means geopolitical instability or concerns over a deep recession can trigger a rapid rise. Lower interest rates generally benefit the non-yielding metal, while higher borrowing costs usually exert downward pressure. However, because Gold is priced in US dollars (XAU/USD), most price movements depend on the performance of the US Dollar (USD). Dollar strength tends to restrain Gold prices; a weaker currency is more likely to lift them.