Near $3,900: Gold struggles as traders weigh Middle East developments and US election risks

• Oil’s rebound and hawkish Fed expectations limit Gold’s recovery.
• US midterm elections and employment releases are in focus as traders seek fresh market direction.
• $3,870 yearly low remains at risk of a retest as bearish momentum weighs on Gold.

Gold (XAU/USD) trades around $3,900 at the time of writing. The metal is down 1% on the day, losing momentum on Tuesday as Oil prices recover. The rebound followed a Wall Street Journal (WSJ) report of a US strike on Iran’s Qeshm Island. That report weakened optimism surrounding diplomatic efforts, which had driven energy prices sharply lower the previous day.

West Texas Intermediate (WTI) is trading around $97, gaining 2.23% after a decline of nearly 7% on Monday. Oil remains volatile as traders respond to changing headlines.

Since the war started in late February, the relationship between Oil prices and interest rate expectations has been a central influence on Gold. Rising energy costs intensify inflationary pressures. This encourages central banks, especially the Federal Reserve (Fed), to maintain elevated interest rates or tighten policy further. By raising the opportunity cost of owning a non-yielding asset, higher borrowing costs typically put pressure on the precious metal.

A 25 basis points (bps) interest rate increase in September was followed by a Fed pause in October. The central bank nevertheless reiterated its commitment to restoring price stability, keeping further increases on the table. The CME FedWatch Tool puts the probability of a December rate rise at 75%.

The US Dollar Index (DXY) stands around 101.81, measuring the currency against six major peers. Although the US Dollar (USD) has eased modestly from recent highs, demand remains supported by Middle East uncertainty, higher Oil prices and hawkish expectations for the Fed. This creates an additional obstacle for Gold.

A sustained fall in Oil prices would be needed to give Gold greater room to recover in this environment. With US-Iran negotiations still clouded by uncertainty, such a fall remains far from assured in the near term. Further liquidation is another risk for the metal. Concerns about AI spending are weighing on technology shares, prompting some investors to sell Gold to offset losses and meet margin calls.

Tuesday’s JOLTS Job Openings begin a busy week of US labour market releases, culminating in Friday’s Nonfarm Payrolls (NFP). Traders are also watching Tuesday’s US midterm elections, whose outcome could shape the US Dollar’s direction.

US midterms and Iran risk shape 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.” His assessment is 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 immediate aftermath matters too, according to Liebke, who says “what happens immediately after the midterms is also likely to be relevant for the Dollar.” He highlights the risk 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.” Under those risk-off conditions, 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: Further downside remains possible as momentum weakens

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. The Moving Average Convergence Divergence (MACD) is also negative, remaining below zero. Taken together, the indicators suggest sellers still control momentum, even as the sell-off becomes stretched.

The $3,950-$4,000 band provides the first resistance on a recovery, ahead of the 21-day SMA at $4,092. Further up, the 100-day SMA at $4,210 combines with a horizontal barrier near $4,400 to create a wider supply zone. Beyond that, the 200-day SMA at $4,485 represents a more distant structural ceiling.

Friday’s yearly low of $3,870 is the immediate support to watch, with Gold still exposed to additional losses. A breach could open the way to a further decline.

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